Reversion to the mean is the iron rule of the financial markets.

Hint: money flows into most funds after good performance, and goes out when bad performance follows.

While the apostles of the new so-called "behavioral" theory present ample evidence of how often human beings make irrational financial decisions, it remains to be seen whether these decisions lead to predictable errors that create systematic mispricings upon which rational investors can readily and economically capitalize.

Index funds eliminate the risks of individual stocks, market sectors, and manager selection. Only stock market risk remains.

The mutual fund industry has been built, in a sense, on witchcraft.

I believe that the mutual fund industry's biggest shortcoming is too much focus on the momentary price of a stock - an illusion - and too little focus on the intrinsic value of the corporation - the ultimate reality. I'm comforted by the fact that Warren Buffett feels the same way.

Fund investors are confident that they can easily select superior fund managers. They are wrong.