This paper debunks the following five myths:
1) the return investors earn in an actively managed fund measures the skill level of the manager managing that fund;
2) because the average return of all actively managed funds does not beat the market, the average manager is not skilled and therefore does not add value;
3) if a manager is skilled his returns should persist --- he should be able to consistently beat the market;
4) in light of the evidence that there is little or no persistence in actively managed funds' returns, investors who pick funds based on past returns are not behaving rationally; and
5) because most active managers' compensation does not depend on the return they generate, they do not have a performance based contract.
It also argues that the data is consistent with the existence of relatively many skilled managers who add considerable value but capture this themselves in the fees they charge.
This paper is an intuitive summary of the research reported in Mutual Fund Flows and Performance in Rational Markets and is written with a practitioner audience in mind.