On the tennis court, the top players dominate. At Wimbledon this past week, no singles player seeded below #8 made it past the quarterfinals. Roger Federer won his seventh title and Serena Williams won her fifth. We expect top players to win their matches and they generally do. The cream just rises to the top through superior physical talent, court strategy and mental toughness.
Many expect the same of “star” money managers. We expect fund managers with a year or two of winning performance to lead the way indefinitely. But that’s not how it works.
Talent is temporary, or maybe it’s just luck
When a fund manager posts impressive performance, it’s easy to attribute it to skill and expect that skill to persist year after year. It rarely does. Consider the saga of Kenneth Heebner. He ranked as America’s No. 1 stock picker before losing his touch and most of his main fund’s assets. The 71-year-old manager is now skidding along the bottom of his peer group for the fourth year in five, trailing 96% of peer funds.
What we perceive as superior stock picking talent often fades, or worse, reverses itself. The difficulty of continuing a winning streak for active managers suggests that it takes at least as much luck as talent. Which is why we index.
For our most popular posts, click here.
This article may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.
Nothing in this article is intended to be or should be construed as individualized investment advice. All content is of a general nature. Individual investors should consult their investment adviser, accountant, and/or attorney for specifically tailored advice.
Any references to third-party data or opinions are listed for informational purposes only and have not been verified for accuracy by the Adviser. Adviser does not endorse the statements, services or performance of any third-party vendor without specifically assessing the suitability of a third-party to a client’s or a prospective client’s needs and objectives.