Running_Man
Thinks s/he gets paid by the post
- Joined
- Sep 25, 2006
- Messages
- 2,844
samclem said:William Bernstein has a new article at his site that discusses the value of active management. As usual, it is a good read.
http://www.efficientfrontier.com/ef/0adhoc/excel.htm
Some nuggets:
"For many years, I’ve been troubled by a conundrum: If mutual fund investors are not earning the market return, even adjusting for expenses, who is taking the winning side of their transactions? The yawning gap between dollar-weighted and time-weighted mutual fund data demonstrates just how far short John Q. Public falls. Amazingly, professionals, as represented by the managers of hedge funds, mutual funds, and pension funds, don’t do that much better."
. . .
"The message of both pieces is: If you want to earn high investment returns, you’re going to have to look far from the overgrazed investment commons. At a bare minimum, you have to tune out the noise from the media and analysts of all stripes, and actually think for yourself. This is not something everyone can do; abstracting investment ideas from Forbes does not count.
Beyond that, you’ll probably need to avoid the public securities markets altogether and invest privately. Needless to say, purchasing and running a diversified stable of small concerns is not for the faint hearted, the quantitatively weak, or those without razor-sharp interpersonal skills, exquisite business training, and huge gobs of spare time."
. . .
"If you want to pick your own stocks and bonds, be my guest. Just don’t imagine that making your decisions on the basis of publicly available information and analysis will lead you anywhere but to the poor house. You’re going to have to look at the primary data and analyze it entirely by yourself. And you’d better be good at it."
What a total crock. I really am not interested in what managed funds do versus index funds, that has no impact on my investments as an individual owner. The implication that an individual cannot properly value securities is laughable. Perhaps Mr. Bernstein should look at the facts behind Wall Street Journal article on Illinois Tool Works. Everyday managers are expected to look at companies and come up with ideas for acquisitions with the goal of 16% stock growth over the long term. One of their most recent purchases was a publicly traded company called CFC International. Anyone could have been purchasing that stock it traded over the years for a laughably low price of $4 per share after going public at 12 per share and went as high as $25 per share before the CEO tried to sell out at 20 percent under the market, recognizing the stock was overpriced.
It was not too difficult to see the stock was too low at $4 or too high at $25. Illinois Tool Works could value that as well, I know they turned down an opportunity to buy at $20 when it was selling $25 and eventually bought at $16 when the market came back to the proper price. Of course Bernstein would say this is an impossibility - that Illinois Tool Works just got an underpriced company which always happens in these circumstances - just so happens he is dead wrong.