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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: 249443 who wrote (15649)	10/19/2002 9:23:46 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 78634

re: Arne Alsin i should mention that my comments were not on Arne as an investor, but on whether i would pay attention to his "picks" in a venue like RealMoney.com. when i see a low-beta value stock pop 10% in one day because it was somebody's pick, then i know there is a heavy premium built into that "pick". presumably, these kind of pops would not occur in his managed acct picks, so my comments do not apply to his managed accts. Average Return: Top-10 Turnarounds 2002 -19.96% Average Return: S&P 500 -26.19% i have noticed that a lot of value managers in recent years (since March 2000) like to compare themselves to the SPX. whereas in 1999 they did not like to make this comparison--presumably because the SPX kicked their butts. any value manager with a pulse should have outperformed the SPX since March 2000. it does not say anything about their skill. it is simply asset allocation. value managers should not compare themselves to the SPX, since the SPX is a large growth index. instead, they should compare themselves to either a large value or small value index, as appropriate (or even a midcap value index). another point i would make is that two or three years of "market-beating" results say nothing regarding the persistence of an active investor's alpha. moreover, it is fine to cherry-pick in hindsight the best past performers, but as the prospecti say, "past performance is no guarantee of future performance". this is the one statement you can know is true about any prospectus. so it comes down to whether you can cherry-pick on an ex-ante basis. can you pick tomorrow's Warren Buffett today? prolly not. if you answered, "Just pick the REAL Buffett," then let me again refer you to the clause about the past not predicting the future. also, i do not believe hamburgers, Cherry Cokes, and ice cream are the diet i would choose to live a long life. hindsight cherry-picking is only of value if you can teleport your money back to when the guy got his ball rolling (please send my capital to Warren Buffett circa 1956), or if you believe the past predicts the future, which it does not. of course, you can't blame an active manager for trying to look good. how else are they going to earn their vig? the vig, or the management fee, is also as certain as death and taxes. a 1% fee over a 30-year investment horizon adds up to 30%. that is a lot of alpha to make up just to get back to square one. transferring 30% of capital to management sounds like a good deal...for somebody! so if all that is certain is that the past does not predict the future and that active managers will charge their (high, very high--especially in this low-return environment) fees, what's a body to do? thank God for Jack Bogle.