BGR,
You made a bunch of good points. Here's some of my thoughts if you care.
By definition most money managers can't beat the market. A group can't beat itself.
Many funds have costs associated with running them that are higher than they are for an index fund. That accounts for a some of the underperformance.
"Most" of the fund managers are using methods that (IMHO) aren't value based even if they call themselves that. The most common method of investing on Wall St. is to try to predict short term business developments. (quarterly or annually) It's an attempt to exploit differences in the consensus view with their own. It is expected that the stock is going to move based on the reality.
Personally, I can't and don't want to do that. It requires enormous effort, constant phone calls, industry contacts, access to management etc... And except for a few people who are in the position to do all that and are extremely good at it, it doesn't seem to work.
My own view of what true value guys are doing is that they are taking a 5-10 year view of a business, its position, prospects, and making investments based on that view. That puts them in a position of running counter to Wall St. very often while still having a valid approach to investing.
Here's a few examples. I bought the brokers after the 87 crash, the banks during the height of the early 90s recession, the oil drillers when oil was $12. I should have bought the drugs when Hillary was on the warpath too. I was premature in every instance. Almost all the stocks went lower after I bought them. Yet in the end they all worked out really well. I dislike banks, brokers, and drugs now.
I think if you limited your search to fund managers of the type I am describing you would find lots of guys that can beat the market consistently. I am doing it since 1988, (I'm having a horror show year in 99 though) and I know a lot of those guys are more dedicated, more informed, more educated, and smarter than I am.
I think there are two keys to understanding what value is and how to find it. I learned both at the racetrack.
1. It has to be a valid measurement.
2. The majority can't be using it.
If everyone started looking at businesses from a 5-10 year perspective, I would start trying to understand them from a different angle.
Incidentialy, I'm buying property casualty insurers and food/bakery stocks this year and they are lower than when I started.
Wayne |
