I know this is possibly a little old now but one of my recent favourite articles is about to be published in the Financial Analysts Journal, My Top 10 Peeves, by Cliff Asness of AQR. Just click the article name to open and read for yourself.
There are quite a few gems in there but I have to admit my favourite peeve of Cliff’s are some of the things that people say, like…
- “Its a stockpicker’s market”, and
- “There’s a lot of cash on the sidelines”
…I have to admit they drive me nuts too.
This article got me thinking about what my biggest peeve is, and I have to admit it is widely held belief that stockpickers/share managers should be able to produce positive returns and that they should be judged (or benchmarked) based on cash returns instead of broad sharemarket benchmarks such as the S&P/ASX200 or All Ords. I’m afraid if you are a long only share fund manager and your mandate is such that you are only to invest in the sharemarket (and cash), then your benchmark should be based on the sharemarket and your returns will fluctuate just like the market. The broader market (or market beta) is more than likely to be most responsible for your returns, both good and bad, and your market timing and stock selection will hardly result in consistent positive returns no matter how good you are.
That then leads me onto Market Neutral funds and they should be benchmarked to Cash…but my next peeve are from those that imply it is easy to add value by simply investing in cheap shares and shorting overvalued shares such that this outperformance can be easily added to the cash return for a easily gained cash plus return…its not easy and never will be.