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"Benchmarks are the most ferocious of competitors," writes John Standerfer, explaining why...

"Benchmarks are the most ferocious of competitors," writes John Standerfer, explaining why professional investing is the toughest of businesses. "They never get sick. They don't take vacation. They are always 100% invested ... most importantly, they're not aware of their own performance."
Comments (1)
  • valueinvestor123
    , contributor
    Comments (327) | Send Message
     
    This is one of the dumbest things I have ever seen written. I work in the money management world and would never argue that my job (picking stocks) is harder than that of a U.S. soldier or surgeon. The reason most people do not beat the index is simple.

     

    1. They have too many positions. If you don't feel comfortable making something at least a 2% position, you should not own it.

     

    2. They are closest indexer. This means if the S&P has a weighting of say 15% to the financial sector, they have a weighting of 15% to the financial sector.

     

    3. They all follow the herd. Rather than think outside the box and buy spins, post bankruptcy equities etc, they flock to owning Apple, Google etc.

     

    If managers would have less positions, weight the portfolio not against a benchmark, but based on how they feel about particular sectors, and dig deeper for ideas rather than just buy what 30+ analysts rate as a Buy, they would find it easier to outperform.
    28 Aug 2012, 05:08 PM Reply Like
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