THE STOCKMARKET is a risky and complicated place. For more than a century many investors have trusted financial experts to pick the best shares for them, in return for a hefty fee. But even the experts can get it badly wrong.
During the long period when he was a fund manager at Invesco Perpetual, Neil Woodford seemed to be an exception to this rule. He picked unfashionable stocks in areas like tobacco and avoided the dotcom boom. His success prompted many clients to follow him when he set up his own firm in 2014. Woodford Investment Management was managing more than £10bn at its peak.
Why is that so? The most obvious reason is that outperformance over a short period is down to luck more than skill and that, over time, managers revert to the mean. Since fund managers own most of the market, their performance is, on average, likely to replicate the market, before costs. Those costs can be significant so that the average manager is doomed to underperform, after those costs are taken into account.
The resulting pattern can be strong performance in the early years, but a more mediocre result later on. The long-term return numbers can still look good. But most clients will have invested their money after the stellar years; the return earned by the average client will not be that great. A classic example of this phenomenon was Fidelity Magellan. When Peter Lynch took over the fund in 1977, it had just $22m in assets.
It's not like we've shifted every American's retirement plan to this, so no biggie.
So, is this like gambling, but only legal.
Investors need to start using their brain
I love for tweeting things that have been obvious to the casual observer for more than a decade. Index funds have been around so long their inventor has already died after a long, happy life. MutualFunds investing money finance
Experts in quantity become the average
Struggle? How about never!
Is this guy a cousin of coach Mano Menezes?
🤣
I will miss you too, and your tm.
Flew