Some thingsBetter living through biologically-inspired optimization Is active equity portfolio management worth it?I still don't know very much about investment, but consider the following thought experiment. Suppose you believe you can find undervalued companies to go long on and overvalued companies to short -- i.e., you want to take a bottom-up approach to portfolio management by trying to find superior individual stocks. For the sake of simplicity, suppose you limit your investment universe to large-cap U.S. equities - say, the entire S&P 500. Suppose you assume an analyst working full-time can cover 25 stocks; then you need 20 analysts to cover that universe. Since you're so good, assume you can somehow cover it all with just 15 analysts -- you're a superstar who recruits other superstars, after all. Since you're superstars, you're all being paid $300,000 a year. So you immediately have $4.5 million a year of expenses to jump through before you create any added value for your clients. Suppose you have $300 million in assets under management and the S&P 500 jumps up 10% that year, so that $300 million in a portfolio that closely follows that index would give $10 million in profit. In order for your clients to simply match the benchmark index, you have to consistently beat it by 4.5%. That seems like quite an obstacle to overcome in order to add value. Most likely, in order to actually find undervalued companies (presumably all companies in a closely studied, well-known index like the S&P 500 are studied more than most companies), you'd have to widen your investment universe to be much larger, which means you'd have to hire more high-flying analysts, making the goal of delivering any additional profits to your clients even more difficult. 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