Brad-

Thanks for your comment.

What it has to do with the AER is exactly what you recommend: quit asking funds to manage short-term volatility and draw down and instead ask them to focus on the upside of investing.

Industry gatekeepers employ a number of measures for evaluating and selecting funds that are based on volatility as risk: standard deviation, max draw down, high R-square, and the Sharp Ratio. These incent fund behavior that, as you correctly point out, dramatically limits investor wealth.

Abandoning these volatility measures makes it possible for equity funds to become truly active.