Active versus passive investing—it's not a debate to stir the masses on Main Street, but on Wall Street it's a rivalry of huge magnitude. Now value investor Bob Olstein is emerging as a prominent voice in this debate, calling backers of the index strategy "misinformed."
In his recent shareholder letter, Olstein charges that the investing public has been misled by well-regarded academics—pinpointing Eugene Fama's Nobel Prize win in 2013 for his advancement of the efficient market hypothesis as the trigger for the "increase in articles based on faulty logic, a false sense of security and a herd mentality in investing in passive S&P 500 index funds."
The efficient market hypothesis is the belief that any point in time, prices for individual stocks have correctly discounted all of the facts necessary to correctly value a company. Olstein believes by awarding Fama such a prestigious award, it sends a message that passive funds are the safest way to go.