tag:blogger.com,1999:blog-706772597530050449.post2165808663115853613..comments2024-02-19T12:04:56.080-05:00Comments on Reading the Markets: Ellis, Winning the Loser’s Game, 6th ed.Brenda Jubinhttp://www.blogger.com/profile/02587551531260863509noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-706772597530050449.post-15041295863751257202013-07-04T05:27:52.512-04:002013-07-04T05:27:52.512-04:00What is an investor looking for when funds are dep...What is an investor looking for when funds are deployed? To compound those funds over a period of time to save purchasing power as well as earn a decent returns. <br />Since it's not a straight line from point A to B ( even in fixed income as rate of interest changes ) with tolerable variations ( investor tolerance differs).Expecting a fund manager who has to hold cash for redemption's ( open end funds), has to pay for transactions and earn a living will always under perform an index which has no transaction costs, or salaries to be paid.<br /><br />As Mr. Ellis points out 2 out of 3 managers have under performed benchmarks over 10 years means 33% have performed better in terms of returns, bu what about variation does the other 2 managers have more or less variation than the benchmark or the index. If they had under performed the benchmark/index slightly but with much less variation in returns than the benchmark/Index they are adding value.<br /><br />If there are 100 students who took an exam and 60 is the average score, there will always be some students who are below average and some above averages because many are below average does not mean that not every one can be above average. There are always some whoc can be above average. <br /><br />In investment management we are always benchmarking managers to indexes and comparing them on a very short term periods of quarters and years, but as indicated by many hedge fund managers from 1980's there are many manager who've done better than indices and benchmarks either with higher risk/higher returns or lower risk/lower returns. Many have underperformed the indexes for substantial periods ( ex seth klarman during 1990's) but still had provided higher returns than the benchmark over the long term.<br /><br />If luck is more important than skill as skill increases why does major sport franchises look for skill which leaves the result from something they can identify and use to something they have no control over.Good Investment managers agree that luck does play a role in the short term but skill wins out over the long run. The same applies to high skilled activities like sports where luck does determine results in a match, but over the season and long term team with better skills required for the sport will do well. <br /><br />I do think one indisputable fact is that there are many investors who does not have the time nor the understanding to identify the managers & strategies that have better chance of performing well over time. ETF's and Index funds are most suitable for such investors.<br />Anonymousnoreply@blogger.com