Finding a great investment manager

There is no definite level of performance at which you can be absolutely confident the performance is not due to chance. If you set a confidence level of say, 5%, based on some measure, then in the long run about 5% of the funds, or the people investing by some method, can be expected to reach or exceed it. If you make it 1%, even then about

1% will reach or exceed it, and that is still a whole lot of funds or investors. That is all chance.

I do believe that some people can beat the market beyond a chance level, perhaps over long periods of time. But I doubt if anyone can beat the market by a spectacular, hugely profitable level consistently, even though many people are constantly looking for techniques to do so. For most investors, I would guess the proven ways to increase the odds in your favor are simple ones: Avoid all loads and sales commissions, compare management expenses of funds and choose only the lower ones, diversify, stay the course and don't panic, etc.

Here, I am not so sure. Why the leaps of technology should change how much to pay for companies. Would I pay less for a dollar of chewing gum company earnings, than I would for a dollar of earnings of a new technology company? If so, why?

Everything I have seen so far, would suggest that a lot of innovation, while beneficial for the society, is detrimental to ability of companies to earn superior returns.

That is something that I would agree with.

Well, some people did, it is mathematically impossible for everyone to be below average. The question is, of those who did beat the market, which ones accomlpished that for a good reason, due to a good approach.

i

I went beyond it and sold my own bonds, which is to say I am refinancing my house from 15 years to 30. The reasons are twofold, one is low rates, and another is the anticipation of a possibility of inflation.

Ron, have you found a good investing simulation website? I have considered, for many years, to set up "test portfolios", but in the end I realized that I would direct my efforts towards real money, partly because I did not see good simulation websites.

In the last few years, many ETFs appeared that allow us to act on various sector, or investment style ideas. Spiders, for example, while not very new, are even better than mutual funds for tax reasons.

i

Don, I spent the whole weekend thinking about this question. I have come to the conclusion that for a variety of reasons, efforts to find a great money manager are likely to not yield good results. While I will keep looking, I do not expect to find success in this endeavour. besides the fact that such people are rare, the existing ones would be unlikely to take money from small investors like me.

i

This question has been convincingly answered by Warren Buffett's speech titled "Superinvestors of Graham-and-Dodsville".

Note that Buffett does not suggest that beating the market is easy, or is within the ability of any given person. Common sense suggests that it is not easily possible for the great majority of people (contrary tio what many seductive books claim).

i

Good point. But besides discipline, to be buying during this latest downturn, an investor needs cash, which means not having been fully invested previously. In other words, the discipline that you are mentioning, includes not only willingness to buy now, but also an unwillingness to be fully invested previously. This is actually an implication of what you wrote, so if you had this in mind, I would just say I agree.

Compared to two years ago, stocks are roughly twice less risky now, since their price is about twice less than before. So buying now, when viewed from that standpoint, requires not nearly as much gumption as it may seem.

i

Or perhaps just a multiple asset class portfolio with an appropriate asset allocation - and then simply rebalance. Rebalancing is precisely how one has capital to invest in less expensive parts of the capital markets and pull capital ouf of the more expensive ones. If someone had both equities and treasuries in his portfolio, March would have been an excellent time to rebalance, as market moves would have changed his asset allocation pretty far from any original target he'd been at anytime 6-12 months before that.

That's not entirely obvious. Prices are lower, but so are earnings and expected future earnings.

Well, according to SCOTUS's Bayou precedent, investors in Madoff's scheme -- even those that cashed out years ago -- are subject to clawback. They are only entitled to the money they put in our of pocket, not any "earnings". And supposedly the receiver is going to try to perform the clawbacks.

-- Rich Carreiro snipped-for-privacy@rlcarr.com

The contest website is

, I am only anaverage performer in the contest, but that's better than the S&P 500. I haven't found any websites that help with simulating investments. I have used some that gave back dated results and I wish they were still around.

I depend on the financial information using Yahoo and sometimes Reuters to get candidates for investment. I also try to concentrate on stocks where covered calls have a high time premium.

I found ETFs work well for foreign investments because not all foreign stocks are traded on US exchanges.

-- Ron

I've used Quicken to do this. I put together paper portfolios and track them. I don't know how far back their historical data goes, but it good for forward tracking. -- Doug

So we have come around to the same point of view. That's quite a shift from:

"Some people do beat the market. But when it happens, it can be explained by chance, not knowledge or special skill."

But it's an interesting question on whether someone is lucky or good, especially in fields with a lot of randomness built in. Nassim Nicholas Taleb has an excellent book titled "Fooled by Randomness" that discusses the issue extensively.

Absolutely. Someone who claims otherwise is probably a scammer, e.g. Madoff. On the other hand, you do not have beat the market by spectacular levels to have spectacular results. The ACRNX fund I mentioned. Its 3% plus excess returns turned $10,000 in 1972 into $750,000 in 2008 vs. $242,000 for the S&P 500 total return.

Yep.

-- Doug

And over the long term...more than 10 years...or eventually lost boat loads.

======================================= MODERATOR'S COMMENT: Please trim the post to which you respond. "Trim" means that except for a line or two of the previous post to add context, the previous post is deleted. Thank you.

Yes but the chairs change. Check back in 10 years time. Maybe you do well for 3 years but then make a bad allocation and whack. I would add that with volatility in both stocks and bonds...everyone be careful. And I think there is no doubt the government is going to inflate its way out if the debt problem. This has been done since the dawn of the Romans.

======================================= MODERATOR'S COMMENT: Please trim the post to which you respond. "Trim" means that except for a line or two of the previous post to add context, the previous post is deleted. Thank you.

Of course Buffet probably gets great information from the Insurance Business side of Berkshire. Inside info?

They have two kinds of insurance business. One is retail insurance, specifically car insurance by GEICO. That would be unlikely source of inside information, unless you could be the first to know that a popular CEO just died in a car crash, for example. That would be an unlikely source of billions of dollars of gain.

Another kind is reinsurance, which amounts to protecting retail insurance companies from excess losses caused by catastrophes. For example, a car insurer could protect itself from catastrophic losses on its comprehensive insurance policies, caused by a hurricane.

That also is an unlikely source of inside information.

i