The Best Active Managers Aren't All They're Cracked Up To Be: Financial Advisors' Daily Digest

by: SA Gil Weinreich

Summary

Value investor and advisor Eric Nelson looks back at the performance of all-star value managers - and is less than impressed.

Mohamed El-Erian argues low Treasury yields reflect U.S. safe haven status – beyond any calculations of U.S economic performance alone.

NYU accounting professor says GAAP and non-GAAP accounting fail to reveal true business performance, and points the way to indicators of value creation and future growth.

Stock picks, manager selection and market forecasts are made daily - some with considerable bluster. Investors who consume this information, and sometimes act on it, and don't always check to see how those predictions turned out.

But Servo Wealth Management's Eric Nelson has done just that in an article published today on SA, and he did so using a particularly noteworthy benchmark - one of which I myself was unaware - called the Goldfarb 10. I hadn't known that over a decade ago, top value manager Bob Goldfarb (of the Sequoia Fund) wrote out a list of his Top 10 managers - all superstars of value investing. Nelson lays out their overall less than impressive performance 12 years later, and thereby makes a strong case against the notion that one can pick top managers in advance.

I can see some counter-arguments. For example, investors in these value funds did capture some upside and might have had a smoother ride along the way - some of these managers are known for their concerns about downside protection. (Eric - if you're listening - how did the value fund superstars do in terms of volatility; did they at least provide their shareholders a less rocky ride over the period?)

For those wanting or needing to squeeze out maximum return, Eric Nelson's "The Death of Active Management" has some suggestions for you. As always, we welcome reader reactions. Do you think picking active managers based on their track records is defensible?

Meanwhile, here are today's news and views for advisors: