Is it better to have a great defense or a great offense? To take a lesson from football, history often favors the great defensive teams, like the Baltimore Ravens, who crushed the New York Giants in the 2001 Super Bowl with a strong defensive game. Many investors watching that match-up, which happened to take place in the middle of a bear market, likely would have agreed that a good defense is the best offense—for football and for their portfolios.

A defensive strategy is precisely what many money managers suggest when the equity markets decline for an extended period of time. In every bear market, though, there are always some active money managers who claim that it's a "stockpicker's market," and denounce index funds. They suggest that skilled investment managers can alter a portfolio's makeup to invest in defensive stocks or cash, or choose the right stocks to protect against (or benefit from) an impending or ongoing bear market.

The helpless index fund manager, on the other hand, must stay fully invested in stocks, and adhere to the stated objective of tracking a benchmark's return regardless of market direction.

However, the data tells us a different story. A Vanguard Investment Counseling and Research analysis found no evidence to support this theoretical benefit. Active managers may have the opportunity to move to a defensive position, but they have not consistently delivered superior performance relative to a benchmark during periods of market stress.

To be sure, active managers do outperform in some cases. For example, during the bear market of 2000-2003, we found that 60% of active funds outperformed the U.S. stock market. But how consistent is that outperformance, and do the bear market "winners" carry that success over to bull markets?

To evaluate whether the stockpicker's market theory matches reality, we examined the Morningstar Direct database of equity mutual funds. We compared actively managed funds with the Dow Jones Wilshire 5000 Index to represent the market. While acknowledging that the traditional definition of a bear market is a 20% decline in prices over successive months, we modified this definition to include total return declines greater than 10%. This change permitted us to evaluate six distinct market downturns.

What did we find? A majority of active managers outperformed the market in three of the six downturns. These results clearly indicate a lack of consistency with respect to the success of active funds in general.

Moreover, success in one down market does not necessarily mean success in subsequent down markets. Only a small percentage of funds—12 of the original 110 funds, or 11%—successfully outperformed in all six downturns. Because there is no guarantee that these funds will outperform again, selecting the next winning fund is like finding the proverbial needle in a haystack.

In the end, even if a client was fortunate enough to own one of these 12 funds during the previous downturns, he was likely still disappointed with his bottom line. Although these funds outperformed the benchmark on a relative basis, they still lost money—their returns were largely negative on an absolute basis.

The very nature of the markets makes it difficult to outperform an index consistently and over the long term. Indexing works because, before costs, the market is a zero-sum game. For every invested dollar that outperforms the market, another has to underperform. In aggregate, investors are unable to beat the market because they are the market—half will win, half will lose, and that's before one considers the impact of costs. Once investment costs are imposed upon returns, the average investor receives less than the market rate of return. Therefore, investors who own the entire market, at a very low cost, should outperform most active managers over the long run.

Of course there are examples of gifted money managers who have bucked the averages and outperformed the indexes—household names such as Warren Buffett, Peter Lynch, John Neff, Sir John Templeton. However, these examples are rare, and the longer the time period, the harder it is to continue to outperform, as many star managers have come to learn.

In results that are similar to those produced by our own research, The Wall Street Journal reported earlier this year that, between 1999 and 2006, only 31 funds consistently outperformed the S&P 500. In 2007, only 14 of those 31 funds outperformed the index. That's about half—or what you would expect from chance. In order to consistently beat the market, a manager must be consistently right. He must accurately time the start and the end of the bear or bull market and must accurately select winning stocks during each period.