Mutual funds and how to pick them.

I attended an information session at my old alma mater - the Rotterdam School of Management, and found that my favourite professor was teaching an elective at that time on investment management. So I ducked into the class to relive the experience again.. One of the topics covered was how to pick mutual funds based on factor and style analysis. Well, to cut a long story short, she told us that a very distinguished Nobel laureate called William Sharpe who's studied funds in depth suggested that the best ways to pick a mutual fund were in this order of descending importance

Expense ratio

Churn of stocks held

... The message was - find the funds that have the lowest operational and transaction costs. Amazing isn't it? The market and the fund's mandate makes sure that no one fund can beat the market at all times. So effectively, funds will yeild the same return on investment - in the long term. The only way an investor can get above average returns is if the fund's costs were lower... :-) I wonder if I can use this principle in pricing other physical products and services. (Any ideas would be appreciated here) When I worked in India for an outsourcing firm, there was tremendous cost control.. The message being - the lower your costs, the more value you can provide to a customer, and the better the chance you will survive in the long term. Lessons that are tough to forget. But it was nice to hear them again in a totally different context.