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Empowered Investor: A Guide to Building Better
Portfolios by Keith Matthews
Price $15.95>> 
 Myth#2:
Star Managers can be Identified in Advance
Finding the Next Wayne Gretzky of Money Management is Questionable
at Best
In the previous chapter, we saw that the last ten years of data
demonstrated that, on average, active managers underperformed their
respective benchmarks over long periods. This under-
performance can be attributed to the notion that the market is
fairly efficient (and that managers have great difficulties consistently
finding incorrectly priced securities); and that the total costs
incurred by following active trading strategies counters any advantages
that stock selection may bring to the equation. This kind of data
is hard to refute or ignore, and most sophisticated investors believe
it to be true.
Yet when shown data demonstrating the difficulties that investors
and advisors have in identifying star managers in advance, investors
may still remain skeptical. Why is this? Why do some investors still
believe that star money managers really exist, and can be found
in advance? And why do they believe that manager selection services
at large financial services firms can identify superior managerial
skill?
The answers lie in human nature. We are eternal optimists when
it comes to believing that star performers exist. After all, super
achievers and superstars exist in most commercial industries and
sports fields. We read about them in our favourite magazines and
they become success stories in our popular culture.
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