Exclusive Interview: Prof. William Sharpe

Exclusive Interview: Prof. William Sharpe

Prof. Sharpe "The key issue is that past performance is a thin reed for how to predict future performance. Expense ratios and turnover are generally better predictors." - William Sharpe

PALO ALTO, CALIF. - Few individuals have advanced theoretical underpinnings of index investing more than Professor William Sharpe, STANCO 25 Professor of Finance at Stanford University and Nobel Laureate in economics. Few individuals are doing more to make the case for prudent, science-based investing understandable to the average investor.

At his office next to Stanford Business School, Sharpe fielded questions on the state of indexing during academic "office hours". As graduate students dropped in to try to squeeze into his classes, he outlined his views on indexing today for IndexFunds

"I am an educator," he said. "The thing I would love most is to educate everyone." He has clearly had an effect on Jack Bogle of Vanguard Group, whose new book Common Sense on Mutual Funds prominently mentions Sharpe in its acknowledgements section.

"My conclusion after worrying a lot about how to help the American investor is that the majority don't want to be educated in any depth," he said, which is rather understandable. People have careers, hobbies and family life, and they can devote only so much time to understanding investments.

So he keeps many of his points simple. "The average dollar in an active fund will net of costs underperform the average dollar in an index fund," he notes. That of course is because active funds have higher fees.