Really Great Article on PI Advantage

[doug2500]

We've probably all heard the arguments about why PI's can do better than Fund managers, and why Funds underperform benchmarks, but I've never read it in such a clear and convincing way:

https://theundercoverfundmanager.com/ho ... -the-pros/

It was flagged on Stockopedia this morning and I think it's well worth sharing here too.

As a fund manager I have good access to company management teams, third party research, professional subscriptions and a network of contacts. I attend conferences (virtually nowadays), capital markets events etc. I have Bloomberg data on tap and qualifications coming out of my ears. And yet a significant number of private investors will have performed much better than me.

[Arborbridge]

We've probably all heard the arguments about why PI's can do better than Fund managers, and why Funds underperform benchmarks, but I've never read it in such a clear and convincing way:

https://theundercoverfundmanager.com/ho ... -the-pros/

It was flagged on Stockopedia this morning and I think it's well worth sharing here too.

As a fund manager I have good access to company management teams, third party research, professional subscriptions and a network of contacts. I attend conferences (virtually nowadays), capital markets events etc. I have Bloomberg data on tap and qualifications coming out of my ears. And yet a significant number of private investors will have performed much better than me.

"Investing is one of those rare pursuits where amateurs can have an advantage over the professionals. "

Well, can have perhaps but it not that easy, as I know to my cost. I honestly believe one has to be pretty good to overcome the advantages that a fund manager has - or at least the better ones. I've found it hard to consistently come up with a performance which is anything more than fair to middling, whatever technique or idea tried through the decades.

Some PIs have the knack but a great many do not - indeed the vast majority probably do not (though I don't know how anyone would know).

Stockopedia naturally have a vested interest in promoting this view of PIs - they make a living from them.


Arb.

[Bubblesofearth]

We've probably all heard the arguments about why PI's can do better than Fund managers, and why Funds underperform benchmarks, but I've never read it in such a clear and convincing way:

https://theundercoverfundmanager.com/ho ... -the-pros/

It was flagged on Stockopedia this morning and I think it's well worth sharing here too.

As a fund manager I have good access to company management teams, third party research, professional subscriptions and a network of contacts. I attend conferences (virtually nowadays), capital markets events etc. I have Bloomberg data on tap and qualifications coming out of my ears. And yet a significant number of private investors will have performed much better than me.

I disagree with almost all the points except charges. The rest carry the implicit assumption that PI's are able to stock pick successfully. Maybe there are a few who can but IMO the vast majority can't and most success stories are down to luck and, on discussion boards, survivor bias.

Even fund charges can be reduced if going for trackers. Yes, the emphasis in the article is on active funds but trackers are still funds distinct from PI active management.

IMO PI's can have an advantage not covered in the article. They can adopt an equal weight on purchase long term buy and hold strategy. This is all but impossible for fund managers.

BoE

[doug2500]

Valid enough counterpoints.

I suppose the important word is 'can' as suggested. I would say most of the points mentioned have worked for me, but I'd also have to mention my best stockpick was Fundsmith and it's my biggest holding. And while I liked it's sales points on launch I never expected it to be as successful and there's a certain amount of luck there if you will. I personally don't think luck is quite the right word, but certainly the future is unknowable and unpredictable with any certainty.

Survivorship bias is a strong influence and I don't suppose we'll ever know how successful the PI really is.

[LooseCannon101]

I liked the article and the other articles on theundercoverfundmanager.com

If buying good companies at fair value and holding them for the long term is such a great strategy, why don't investors engage with fund managers and investment trust directors to encourage this behaviour? The reasons for this might be investor lethargy and a too diversified portfolio of funds.

If we as private investors want change in the direction of a fund, we must take action.

Personally, I always go to the AGM of F&C Investment Trust and have recently submitted questions to the board.

[Bubblesofearth]

I liked the article and the other articles on theundercoverfundmanager.com

If buying good companies at fair value and holding them for the long term is such a great strategy, why don't investors engage with fund managers and investment trust directors to encourage this behaviour? The reasons for this might be investor lethargy and a too diversified portfolio of funds.

Some do. Hasn't Buffet taken this approach on occasion with BH?

What funds cannot do, however, is equal weight on purchase for all investors. To do that would require setting up different portfolios for each investor.

BoE