Back in the day, I was actually known as the Usain Bolt of Wind Skill Elementary School, and I have the purple ribbons to show it. Not that I carry these things around everywhere I go, but these things don't grow on trees, you have to earn them. Sadly, fourth-grade was the pinnacle of my athletic success, with the one exception of that sweet basketball hook shot from the first investments course. Being from Wisconsin, I got addicted to dairy products and meat at an early age, ending my running career, but I still love to give back, sharing my talents as a coach. In fact, I'm going to work out three runners today. I was more of a 220 yard dash myself for those that you can see in the fine print on that purple ribbon, but today we're going to have a 100 meter run. Let's think of the hundred meters as representing an average stock return of 10 percent per year. Every 10 meters is like one percentage point of return, or every meter is like 0.1 percent or 10 basis points. Who's lining up first here? It looks like the first runner is someone called S&P 500 stock index fund. Come over here. It says you have an annual fee of 0.05 percent. That means for every $10,000 invested, this runner only charges you five dollars, not bad S&P 500 index fund. Given your 0.05 percent annual fee, it's like you have to take half a meter step back from the starting line, so why don't you just move back a little bit, not too bad though. Second runner, who are you? It says you're actively managed stock fund. Come over here. It says that you have an annual fee of 0.8 percent per year. If you charge 0.8 percent annual fee, this is like you having to step eight meters back from the starting line. Why don't we back up? You'll start right about here. It looks like the index fund already has a big lead over you, but maybe you can catch up during the race. We have one last competitor. Who are you here? I see here, final runner is called actively managed stock fund from broker. Get over here. Come on, hurry up. It says that you charge an annual fee of 1.2 percent per year. I guess this reflects investor needing to pay both the fund for the active stock picking as well as a broker for distributing the fund. If it actively managed stock fund from a broker, charges are 1.2 percent annual fee, that's like having to take a step back 12 meters from the starting line, so let's back up a little more here. Why don't we start right about here. Wow, this is quite a distance from the starting line that you're set up at. You have a lot of distance to pick up, hope you are a good stock picker, I mean racer. I think we're about ready to go, everyone set your mark. Who are you going to bet on to win the race? You might not realize it, but you're actually placing bets on a race like this whenever you invest in a mutual fund, which most people do. Usually a higher price is a signal of higher quality. For that to be true for mutual funds, though, actively managed funds with higher fees need not only tie the index fund in terms of speed or investment skill, they need to beat it by non-trivial amount just to break even after the fees are accounted for. Does that typically happen? Who will win the race? I bet your bank account would like to know. Stay tuned to Module 4 to find out. On your marks, get set, go. Now, module in 60. Ready? Go. In Module 4, we will learn about the evidence regarding the performance of actively-managed mutual funds. We'll learn about the fees charged to investors by mutual funds and the evidence regarding the relation between fees charged and fund performance. Differences in the performance and fees charged by mutual funds directly bought from a fund company and those bought through a broker will also be discussed. The module will highlight segments of the portfolios of mutual funds that may be more likely to outperform, such as those that are geographically proximate or driven by network connections. It will also provide examples of a few strategies designed to earn Alpha, that is, yield positive risk-adjusted returns. An international perspective will be provided, as well as the discussion of the economic forces affecting the mutual fund industry. The module also features interviews with professors Joshua Paulette and Jaquan Wong, regarding the incorporation of information and stock prices. All this in Module 4.