Active portfolio management strategies include

• style investing: for example, choosing only value stocks, growth stocks, or small-cap stocks for a portfolio;
• stock picking: picking particular stocks based on fundamental analysis, technical analysis, or the latest touted stock analyst’s recommendation;
• market timing: choosing when to be in or out of the market, by attempting to forecast the business cycle;
• sector rotation: investing in particular sectors of the economy that the investor hopes will outperform next, by attempting to forecast the business cycle.

Scientific studies have demonstrated time and again that active portfolio management strategies tend to reduce investors’ average, long-term, after costs rate of return.  This is so because active strategies typically increase costs of investing and tax liability with no attending increase in the rate of return. 

For example, a study by Robert Jeffrey and Robert Arnott titled “Is your Alpha Big Enough to Cover Its Taxes?” found that of 71 large-cap mutual funds, only 3% of the actively managed funds beat the Standard & Poor’s 500 index over the 10-year period from 1982 to 1991.  In another study titled “Bogle on Equity Fund Selection,” John Bogle, the fabled founder of Vanguard, showed that only 9 of 355 equity funds beat their appropriate market benchmark over a period of 30 years.
 
To paraphrase William Sharpe, Nobel Laureate for financial economics in 1990, the long-run average return to active investment strategies will be the same as the long-run average return to passive investment (The Financial Analysts' Journal, Vol. 47, No. 1, January/February 1991. pp. 7 - 9).  But since active investment strategies increase the cost of investing, the long-run average return to passive investment will be greater than the long-run average return to active investment.