Much like our article on Buffett’s underperformance a few weeks ago, all great active managers go through periods of underperformance. Below is the 2016 outlook for Gotham Funds, run by Joel Greenblatt and Robert Goldstein.
A wonderful paragraph and full letter attached:
“In summary, as we’ve said before but hope not to rely on very often: “Research into the characteristics of returns for top performing managers is compelling. Investors need to be patient to take advantage of higher long-term returns. Over a recent decade , looking at just the top quartile (best-performing 25 percent) of investment managers, almost all of these top-performing managers (96 percent) spent at least one three-year period during that decade in the bottom half of the performance rankings. Fully 79 percent of those who ended up with the best 10-year record spent at least three of those years in the bottom quartile of performance and a staggering 47 percent, about half, spent at least three of the ten years in the bottom decile of performance (it’s unlikely that many of the original investors in this last group stuck around to achieve those great ten year returns!) Yet all of these managers ended up with top ranked 10 year performance. In other words, to beat the market, managers must do something different than the market. In the vast majority of cases, the returns for long-term top performing managers zig and zag quite differently from market benchmarks.”
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