Kraftwerk;202882 wrote:Jesse M;202878 wrote:Thanks Tim
It may possibly have been my post
https://moneyforums.city...v-Index.aspx#post201406
If you have the inclination the following is a good read. It is a year old but follows the active/passive debate with extra facts and figures, particularly standing out for me is that 85% of10 year top quartile funds that spend up to 3 years in the bottom half of their peer group.
how many investors will have the fortitude to stick with a pick after three years of underperformance?
Essentially this is why many retail investors and majority active fund managers fail.
There is too much pressure on actives (for retail investors it is the fear and panic) to perform on quarter to quarter let alone a year. This is not necessarily for the investors as as such but for the institution so that they can keep the AUM and the associated fees and in the process hope that being in the top of the table for a year will get press coverage and thus attract new funds also.
It is for this reason that small boutiques generally come along and do well initially only to revert back to the same old corporate culture from which they departed in the first place. Think of it as mean reversion to the boardroom.
As for the few that do follow the simple yet effective Warren Buffet mantra 'only invest in a company that should the stock market shut down for the next 10 years then you would not be worried' ; they tend to be marmite like. Held on a pedestal in the morning and in the gutter by tea time.
In another thread someone had asked for a list of holdings that that beaten the S&P500 on an annualized basis over 10 years. The list comprised of names which always seem to in the headlines, however not for the same reason. Today, they are superstars and the UK answer to Warren Buffet, the day after they are vilified and all the commentators (media etc) seem to be experts and able to able to offer sage-like advice by having the skill to disect and analyse each stock that manager holds.
Back to the list - The majority on the list are in fact boutique small house names or managers who are able to use their skill and judgement rather than comply with a board who does not have the investors best interest in mind ( I refer to IT's). A successful money manager has said the best ones are those who already have monies and thus in essence they are a man of leisure (does not have the same connotation when applied said with 'lady' but l am sure you get my point) and investing / money management is treated as a leisurely activity as opposed to a 9-9 job.
These people are successful investors as they are dog headed, stay firm in their analysis and beliefs and prepared to hold on to a holding if it goes down by 50% for they would have done the research and bought the company (not traded the stock) and be prepared for the market to shut down for 10 years with no one but the shareholders to report to. Those shareholders should also be able to stomach the decisions on the people whom they have given their monies to. Top of that list happens to be like of iii, LTI, NAS, SMT which get praises. Even Fundsmith who delivered out performance in 17 out of 20 years was vilified in 2020.
The stock market and in turn the fund management industry is run by consensus, however as Charlie Munger and Buffet (and the successful ones on the list) say, just because the majority (or the market) say one thing / price, it does not mean that it is right or the right price. The difficult part is a manager realising the value and then having the nerve to hold on to it.
We shall see if Munger is right to bet big on Aiibaba having doubled down and added more to his position in Q4.
As for us, retail investors, I guess the real question is how much conviction do we have in the manager whom we allocate our capital to. After all unless we switch off from the markets and noise, we will constantly be bombarded with analysis, views, and all the reasons, aimed our doubt sense in the hope of triggering our action. The most convincing of this this is the short term analysis against a vehicle which tracks the market as it is the most easy to track and compare against. IHence if we are uncomfortable with a decision which we have made based on the analysis of other, then a tracker it should be.