Re: Evaluating Managed Funds
So I read your interview.. I found this passage interesting:
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So once you've decided to take the market risk, creating your portfolio seems to come down to deciding what your overall risk level is, and then you allocate by size, and between growth and value, to achieve your risk/reward goals.
Have there been any studies that have ever impressed you about active management in any capacity? I mean, has there been any evidence that would suggest to you that all of the Wall Street analysts, gurus, salesmen, and research departments are anything but a complete waste of time?
You used the key word: salesmen. I might be willing to say that the people who get pointed at consistently, who have shown consistent performance even after they have been pointed at, really do have something. These are always the same people, Warren Buffet, Peter Lynch, and then who?
Okay. You talk to Rex Sinquefield, and he'll tell you that in any normal distribution you're going to get those outlying orangutans.
I put it carefully. I said if you identify them, and in the future they continue to do well, then I'm starting to believe it. This sounds like the frustrations of my college days when I found that the system that worked on the old data didn't work with the new data!
So, in fact, there may be a Lynch and a Buffett effect out there somewhere?
There may be, but the non sequiturs that people jump to after that is to say, Aha! Active management pays!
No, it means that Peter Lynch and Warren Buffett pay! And what is it about them that we can clone? Where's the next one?
Yeah. I don't think that's something you can teach anybody or anything like that. The Magellan Fund [once managed by Peter Lynch] by any risk-adjusted model, is off the map. But there are only one or two like that.
Isn't it interesting that the last three years' performance at Magellan Fund isn't Peter Lynch's? Jeff Vinik's performance was also good. I presume because he made a big bet on technology stocks and won.
Another thing I found when I looked at Magellan was that it had a greater small stock bias when it was a smaller fund.
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