Welcome! Please Log In
Essentials Popular Topics Favorite Forums & Blogs Join Discuss to setup a list of your favorite forums/blogs.
Discuss > Single Post
Manager risk
Robert T 04-05-2006, 10:39 AM | Post #2145812 | 
Decisions to index or not are obviously personal and each investor has their own arguments or rationale for their chosen approach - as often elaborated on this forum. IMO, particularly for taxable accounts, the case for indexing has considerable appeal - particularly with a 40, hopefully 50-60, year time horizon. This is beyond the professional life span of may 'star' managers (Hussman, Montgomery (Bridgeway aggressive funds), Miller) with a significant risk of being stuck sometime in the future with significant capital gains in a poor performing fund. Just look at the Magellan Fund, which performed spectacularly under Lynch but has recently lagged its benchmark index - sometimes significantly. A few thought provoking quotes from Ted Aronson and John Bogle:

"Under normal circumstances, it takes between 20 and 800 years [of monitoring performance] to statistically prove that a money manager is skillful, not lucky...To be 95 percent certain that a manager is not just lucky, it can easily take nearly a millennium - which is a lot more than most people have in mind when they say "long-term". Even to be only 75 percent sure he's skillful, you'd generally have to track a manager's performance for between 16 and 115 years."

"If [a firms] money-making machine is inside one person's head, your risk is that person's lifespan -- or the chance that he'll get recruited away to another company".

"Once you throw in taxes, it just skewers the argument for active management. Personally, I think indexing wins hands-down. After tax, active management just can't win."

Ted Aronson (all above)

"the average mutual fund manager lasts just five years. " "All too often when a manager departs, the new manager's broom sweeps clean, as he reorders the portfolio comport with his own strategies"
John Bole


Originally posted in thread: 49305
View Complete Thread
Reply Quote
  • Favorites
  • Flag
  • Contact
    © Copyright 2019 Morningstar, Inc. All rights reserved. Please read our Terms of Use and Privacy Policy.