Advisor/ Broker Reputations

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May 1, 2007 8:34 pm

[quote=Indyone]If you’re focusing strictly on 2006, GFA and AMCAP
underperformed.  The other four in my example beat the index
yet again.  As far as looking only at the winners, I looked at
every domestic stock fund American carries…not just the
"winners".  As far as I know, they’ve not merged or liquidated any
funds, but I’ll leave it to someone who knows them better than I do to
verify this. [/quote]

I'd have to look more closely but I don't think all American Funds are benched marked to the SPX, as many of them are small/mid/value type funds.

And of course there is a big issue of luck built in to all of this. We are only talking about American funds because they have survived to be talked about it.

[quote]As far as picking random funds...why on earth would I?  If you look at managers with long-term track records that persistently outperform the indexes, why wouldn't you use them?  As I said earlier, the funds cited in my example aren't the best ideas I have...just a very commonly used idea that most folks on this board would be familiar with.[/quote]

This is where you get to the question of if manager track records have information content. I.e can past performance predict future results?

The general result has been that manager performance is not persistant, and that manager track records have little information content.

Now of course there are exceptions to everything, but in general this is how it is. And in my opinion this is the way to bet. Assume no one knows anything, since we lack conclusive evidence otherwise.

It's also a bit of risk management as well, since really big cock ups usually require human intervention.

[quote]If indexing works for you, go with it.  I've looked at indexing a long time and have never been sold on the theory.[/quote]

It's not so much theory, as it is a radical admission of humility.
May 1, 2007 9:08 pm

I totally agree with your post. In my opinion, anytime sales becomes part of the equation people turn their noses up.

May 1, 2007 9:44 pm

[quote=AllREIT][quote=Indyone]If you’re focusing strictly on 2006, GFA and AMCAP underperformed.  The other four in my example beat the index yet again.  As far as looking only at the winners, I looked at every domestic stock fund American carries…not just the “winners”.  As far as I know, they’ve not merged or liquidated any funds, but I’ll leave it to someone who knows them better than I do to verify this. [/quote]

I'd have to look more closely but I don't think all American Funds are benched marked to the SPX, as many of them are small/mid/value type funds.  I just referenced large cap growth and value funds.  These surely qualify for benchmarking to the S&P 500.  As BL stated earlier, I even left out balanced funds with a significant bond exposure, yet which had outperformed the S&P for the same time frame when there would be no reason to assume they would.

And of course there is a big issue of luck built in to all of this. We are only talking about American funds because they have survived to be talked about it.  If you look closely at American, luck doesn't play much of a role in what they do. Portfolios are managed by multiple advisors which change over time, yet the performance is remarkably consistent.  American is the only one I brought up because it's a well-known and common story...not because I thought they were the absolute best.  I'm not giving up my research that easily.

[quote]As far as picking random funds...why on earth would I?  If you look at managers with long-term track records that persistently outperform the indexes, why wouldn't you use them?  As I said earlier, the funds cited in my example aren't the best ideas I have...just a very commonly used idea that most folks on this board would be familiar with.[/quote]

This is where you get to the question of if manager track records have information content. I.e can past performance predict future results?  I believe to a large extent that they can.  We know they don't guarantee future results, but over extended time frames, good managers consistently overperform and bad managers continue to lag behind until they are fired.  There's some luck involved both good and bad), but over longer time frames, luck is largely eliminated.

The general result has been that manager performance is not persistant, and that manager track records have little information content. I'll respectfully point out that this may be true for bad and mediocre managers, but I think there are plenty of good managers with persistent outperformance.  Sure, they may have a bad quarter or even a bad year, but I'm still comfortable with the premise that there are good managers with established track records that can reasonably be expected to outperform their benchmarks more often than not and on average over longer time frames.

Now of course there are exceptions to everything, but in general this is how it is. And in my opinion this is the way to bet. Assume no one knows anything, since we lack conclusive evidence otherwise.  I think this is a bad assumption.  Whether intentional or not, it is possible for company management to give two different analysts a completely different picture of what's going on in the organization.  Even the time of visit/discussion can have a marked influence over what the analyst sees and hears.

It's also a bit of risk management as well, since really big cock ups usually require human intervention. uhhhhhh...WHAT?!!

[quote]If indexing works for you, go with it.  I've looked at indexing a long time and have never been sold on the theory.[/quote]

It's not so much theory, as it is a radical admission of humility.  I call it defeatist and I'm not willing to give in.  I see too many examples of active management that adds plenty of alpha to justify the fee.  It's not a question of humility...it's the search for what is truly best for our clients.  I think I've found something that you think is impossible.  Time will tell.[/quote]

You've obviously spent some time in academia studying your position and I'll never accuse you of lack of due diligence into the process.  I simply don't agree with it and I think the position taken by indexers is far from irrefutable.

It's one thing to tell the masses that you believe indexing is an effective, low-cost investment strategy.  It's far different to represent it as the best investment strategy...that's opinion, not fact, and there are plenty of well-respected money managers who would strongly disagree with it and have the track record to back their positions.

Sorry, all,  for getting off-topic...

May 2, 2007 2:40 am

I like you, I like sex, it’s nice!

May 2, 2007 2:44 am

[quote=anabuhabkuss]I like you, I like sex, it’s nice![/quote]

I like sex too, but I don’t see what it has to do with this thread.

Are you propositioning him?

Or just posting after a couple of cocktails?

May 2, 2007 3:57 am

[quote=anabuhabkuss]I like you, I like sex, it’s nice![/quote]



PetroKazakhstan!

May 2, 2007 4:06 am

[quote=AllREIT]

[quote=anabuhabkuss]I like you, I like sex, it’s nice![/quote]



PetroKazakhstan!

[/quote]

Dude are you in the bag tonight too?  I feel jealous I’m just on a study break.

May 2, 2007 12:58 pm

Joe,

You obviously haven’t seen the movie Borat.

May 2, 2007 2:28 pm

[quote=BankFC]Joe,

You obviously haven’t seen the movie Borat.

[/quote]

No I haven’t.  I am movie illiterate.

May 2, 2007 9:44 pm

[quote=joedabrkr]

[quote=BankFC]Joe,

You obviously haven’t seen the movie Borat.

[/quote]

No I haven’t.  I am movie illiterate.
[/quote]



Obviously you are from Uzbekistan.

May 11, 2007 1:52 am

[quote=DCedjones]

How come we dont catch a break in terms of reputation versus these other professions?[/quote]

When a bad doctor screws a client he generally kills them and leaves no evidence (if he is moderately competent).  Thus, there is no "bad reputation" to follow him or his profession.

When an attorney screws a client the client is usually none the wiser and cannot find, nor afford, a decent attorney that is willing to screw the other attorney. (professional courtesy)

When a financial advisor screws a client then there is evidence (a diminished account) and he can generally find a good lawyer to take the case on a pro bono basis.  As such, a bad reputation of the financial advisor and his profession will surely follow.

Feb 21, 2012 5:14 pm

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