Most active managers underperform passive benchmarks
There are many possible explanations for this: BUT we see two big contributors.
Structural Issues in the Industry
- An industry focused on short-term outcomes
- An industry confused with too much information
- An industry that encourages more analysis of securities rather than analysis of self
- An industry obsessed by raising capital rather than by maximising existing assets
Behavioral Issues associated with Portfolio Managers
- Most PMs check security prices multiple times per day – EVEN THOUGH – they acknowledge it is not useful to do so
- All PMs have behavioural biases – almost all have never even considered exploring behavioural analysis
- Most PMs don’t use a toolset to aid a disciplined approach
- Most PMs think being ‘right’ about a security is key