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NY times article about managed fund managers
Old 07-13-2008, 02:01 PM   #1
 
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NY times article about managed fund managers

Strategies
The Prescient Are Few

By MARK HLBERT
Published: July 13, 2008

HOW many mutual fund managers can consistently pick stocks that outperform the broad stock market averages as opposed to just being lucky now and then?


Countless studies have addressed this question, and have concluded that very few managers have the ability to beat the market over the long term. Nevertheless, researchers have been unable to agree on how small that minority really is, and on whether it makes sense for investors to try to beat the market by buying shares of actively managed mutual funds.

http://www.nytimes.com/2008/07/13/bu...e%20few&st=cse
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Old 07-13-2008, 03:30 PM   #2
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Thanks for posting. That's a good article and yet another endorsement to what Bogle and co. have been saying for years.

Ofcourse, that doesn't stop Mark Hulbert from selling a newsletter subscription that rates all the other financial newsletters out there!
https://store.marketwatch.com/webapp...inancialDigest
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Old 07-13-2008, 04:48 PM   #3
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From the article:

Quote:
There was once a small number of fund managers with genuine market-beating abilities, as judged by having past performance so good that their records could not be attributed to luck alone. But virtually none remain today. Index funds are the only rational alternative for almost all mutual fund investors, according to the study’s findings
.
Thanks for the link. It's another bit of evidence inte growing pile. Still, I don't expect it will change anyone's actual behavior ("the pot of gold is out there, I just have find the guide who can find it!").[/QUOTE]

There are probably thinly traded, little understood corners of the market where a stock picker could find some inefficiencies. Those aren't the places I'd want to put my retirement savings, though.
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Old 07-13-2008, 07:36 PM   #4
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Argh why are they wasting their time following individual mutual funds, and not individual fund managers.

It seems that in the sports world there is only one franchise the Yankees, (I hate them) who has a winning record that couldn't be explained by just luck. Perhaps one could argue the Celtics, and Lakers are in the category, but I think the whole NFL falls in the bell cure of expected results. So if an academic study came out that said on average sports franchise have .500 record everybody would laugh at the obvious.
But if they concluded based on this study that coaches and/or general managers were irrelevant and all trades and drafts should be based on a index computer model,100 million sports fans would tell the academics they are nuts.

Now a general manager or a coach has lots of ways of adding value to their team. I believe one of the primary one is drafting/trading for players. Especially with the salary caps, a good coach can a get a young player cheap and then sell him when his skills no longer justify his salary. There are even value coaches who acquire players at the twilight of their career and try to get a few more puff on the cigar butt.

It seems to me that there is a lot of similarity between when coaches do in the draft/trade system and what fund managers do in the IPO/trade system. In both cases there is a lot of data out there which is readily available to other traders, and a big company/star player has more information than small company/small college player. Both fund managers and pro coaches get paid big bucks and turn over is frequent. Presumably neither sport franchises nor Wall St firms are stupid and they have good reasons to pay several times more for star manager/coaches than average ones.

Yet every single study focus on mutual funds and not mutual fund manager. I'll believe in perfectly efficient markets when I see the first academic study that looks at the 30 year track record of 207,600 mutual fund stock pickers, and not the 2,076 mutual funds.
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Old 07-13-2008, 09:09 PM   #5
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Originally Posted by clifp View Post
Argh why are they wasting their time following individual mutual funds, and not individual fund managers.
Because that's the product that consumers can actually purchase?

I think comparing mutual funds is perfect. These funds hire the managers and the stock pickers--if the management of the funds can't discern which ones are any good, (and apparently they cannot) what would make any of us think we'd do better?

Keep cutting it finer, maybe the data mine will puke out a nugget. "Well, that study looked at every year! Stock pickers just add value when the market is (bullish/bearish/undervalued/inflation is high/the wind is blowing) etc.
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Old 07-13-2008, 09:14 PM   #6
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Originally Posted by clifp View Post
drafts should be based on a index computer model,100 million sports fans would tell the academics they are nuts.
Hard to say. The educated brains involved in the process have also produced Ryan Leaf, Lawrence Philips and Tony Mandarich...
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Old 07-13-2008, 09:15 PM   #7
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i think the fund managers of past had an easier time than today. i think it was in the 1990's that the number of mutual funds in existence surpassed the number of stocks.
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Old 07-14-2008, 06:36 AM   #8
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Originally Posted by samclem View Post
Because that's the product that consumers can actually purchase?

I think comparing mutual funds is perfect. These funds hire the managers and the stock pickers--if the management of the funds can't discern which ones are any good, (and apparently they cannot) what would make any of us think we'd do better?
I understand that in general people only can buy mutual funds not mutual fund managers. However, the exceptions, Peter Lynch, Bill Miller, Bill Gross, and Warren Buffet are pretty important. It isn't just management of funds that pay attention to individual managers, manager and manager tenure is one of the key elements of the Morningstar star rating system for a mutual fund. So obviously there are bunch of smart folks who think that stock picking skills are important, it can be evaluated, and are willing to pay for it. (There is a significant amount of luck involved and that is why it is very hard to evaluate)

On the other side are academics who I think pretty much have there mind made up, markets are perfectly efficient so indexing is they right way to go.

I skimmed the 30 page report the guys wrote it is very math heavy, so I didn't read it very carefully. What did stand out is that researchers were very sloppy in one respect. They use terms fund and fund manager interchangeably, but they never track the performance of a single fund manager, just the performance of funds.

Let me give a concrete example why this may matter. During the Dot com bubble Janus was the high flying mutual fund company, lots of its funds were top performer, 5 stars, 30-50%+ returns etc. Near the end of the bubble Janus had a lot of staff turn over, and suddenly Janus funds were dogs.

Now I honestly don't know which came first the staff turn over and than the lousy performance, or did the lousy performance cause staff turnover.
I do remember M* reports on Janus funds (I had some) and M* basically throwing up the hands and say well this fund is on its 3rd manager in as many years, we don't know how to classify this fund or how to rate it. .

However as far as the study is concerned it doesn't matter who manages the fund they all get treated the same. Now I suppose this is ok as long as the fund manager are completely anonymous, but they aren't and some companies actually highlight there top managers. An interesting study would be to track Peter Lynch's investment before and after Magellan. An even better study would be to see if any of the asst managers of Magellan during his tenure, went on to become successful money managers. In other words was there some Jr. manager who actually more responsible than Peter Lynch for Magellan outstanding performance.


Given the current state of the industry, I don't disagree with you or even the researchers is passive indexing is the way to go with mutual funds. But that isn't because fund managers are irrelevant it is because (with rare exceptions) we don't have enough information about the stock pickers to make an intelligent choice.
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