Exercise 2: Why a Good Track Record Doesn't Settle the Fee Question — Possible Solution ==================================================================== The friend's claim assumes a fund manager's own past track record reliably predicts future performance strong enough to justify paying a higher fee. This chapter's own real SPIVA data points directly at why that assumption is genuinely shaky. WHAT THE REAL SPIVA FIGURE ACTUALLY SHOWS This chapter cites the real SPIVA U.S. Mid-Year 2025 report finding that 54% of actively managed large-cap US equity funds lagged the S&P 500 in just the first six months of 2025. This is a real, current snapshot showing that in any given period, a genuine majority of active managers - people whose entire job is trying to beat the market - still fail to do so, even after presumably being selected, in many cases, for having a track record that looked promising beforehand. WHY A GOOD PAST TRACK RECORD DOESN'T RELIABLY PREDICT FUTURE RESULTS A single fund manager having beaten the market over some past period could genuinely reflect real skill - but it could just as easily reflect luck, a favorable stretch for whatever specific sector or style that manager happened to favor, or simply the real statistical fact that across a very large number of active managers, some will outperform in any given period purely by chance, the same way a fair coin flipped enough times will occasionally produce an unusually long winning streak. The real, ongoing SPIVA data - measuring active managers as a whole group, repeatedly, over time - is a genuinely better test of whether outperformance persists than any single manager's own past results. WHY THIS CONNECTS TO BOGLE'S OWN FEE ARGUMENT This chapter's own material on Bogle's philosophy makes the point directly: once a fund's higher fees are subtracted from whatever returns it manages to generate, consistent outperformance becomes statistically much harder to sustain over the long run - and the real, current SPIVA figures are exactly the kind of ongoing evidence testing that claim against real outcomes, period after period. WHY THIS MATTERS None of this proves that no active manager can ever genuinely add value - it means a single fund's own good track record alone is weak evidence for expecting that specific outperformance to continue, especially once a real, higher fee is subtracted from whatever future returns actually materialize. ANSWER: A fund manager's good past track record doesn't reliably settle whether the higher fee is worth paying, because this chapter's own real SPIVA data shows that in any given period - including the most recent real six months measured, where 54% of active large-cap funds underperformed - a genuine majority of active managers fail to beat their benchmark, regardless of how promising any individual manager's own past results looked beforehand. Past outperformance can reflect genuine skill, but it can also reflect luck or a favorable stretch for a particular style, and the real, repeated SPIVA data measuring active managers as a whole group is stronger evidence than any single manager's own track record for judging whether that outperformance is likely to persist once higher fees are subtracted. WHY THIS WORKS AS AN ANSWER ------------------------------ This uses the chapter's own real, current SPIVA statistic to challenge the reliability of a single track record as a predictor, and explains why aggregate, repeated data is a stronger real basis for judgment than one manager's own past results.