That hideous fishwrap HaAretz has a good financial supplement called The Marker. In it, a permanent page of a managed portfolio written by two prominent professional managers (see left). It has the rare quality of being almost honest and almost allowing long term comparison between a well managed portfolio and an index portfolio, After six years,the managed portfolio is 28.4% higher in nominal terms, while the index portfolio is 25.9% higher. Apart from the overall miserable yields, I can see no alpha anywhere. With transaction and management expenses, the result is negative. And these two are probably the best managers in TASE. They apply all the textbook rules of diversification and risk managements.About ten years ago I abandoned managed funds and invest by ornithomancy (the fly of the birds, specially blue ones). My results are not worse than The Marker's.
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The financial mangers over at Vanguard Funds subscribe to the Capital Asset Pricing Model. A model now repudiated by the founders of modern portfolio theory. Falkenstein has shown us that the risk premium disappears at the high end. He says high volatility stocks have a smaller expected return. So what is one to do? Combine non-neoclassical macroeconomic concepts with fundamental analysis. Don't buy companies whose business you don't understand. Stay away from the financial sector. Don't buy anything connected with green energy like electric car companies. Don't invest in anything that speaks Spanish. Identify companies with good business models who actually make money and give you a dividend to prove it. Finally-- pray.
The retiring American baby boomers will face hard times over the next 15 years. They will be selling when there are few buyers.
Fortunately, Dr Zarkov, we have an enormous pool of potential investors in Asia. There are 1500000000 Chinese working very hard and saving 50 - 60% of their earnings. The Chinese have started to invest everywhere they are welcome, including Israel. They will be in full "schwung" in 2025.
The rules for beating the market haven't changed since Graham. You have to be:
A) Correct
B) Different
"Textbook rules" won't beat the market, unless they are a framework to which the investor adds his own unique insight.
That doesn't mean active management is futile. There are market-beating active managers all over the place. But they aren't publishing step-by-step instructions in a national newspaper.
There are market-beating active managers all over the place, you write. Certainly. But they dont seem to last.
How long does one need to last to qualify?
Einhorn (15+ years)
Cooperman (25+ years)
Steinhardt (~30 years)
Soros (40+ years)
Buffett (50+ years)
Admittedly, none of the above are PM's at mutual funds. They all found ways to make much more money by other means.
Five among one hundred thousand. Good.
Now, can you please name the five mosqueteers of the next ten years?
Einhorn is young, his methodology works, and he's smarter than the market. He will beat over the next ten years, if he doesn't choose to retire.
So will Bruce Berkowitz and Ted Weschler.
Also, a portfolio consisting of 50% ORI, 50% RUSHB, purchased today and held for 10 years.
-Anonymous Security Analyst
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