VALUE: After Hours (S08 E03): Why Even Elite Investors Are Only Right Half the Time

During their recent episode, Taylor, Carlisle, and Ian Cassel discussed Why Even Elite Investors Are Only Right Half the Time. Here’s an excerpt from the episode:

Ian: I’ve been rereading the book The Art of Execution, which was written by a portfolio manager named Lee Freeman-Shor. And the book was written, I don’t know, maybe back in 2017 or 2016, almost 10 years ago. But it was really interesting, because he invested over a billion dollars with the world’s top fund managers. I think he invested with 45 of them. Some of them are billionaires, a lot of them on TV. He gave each one of them between $10 and $50 million. What he told them was they could only invest in their best 10 ideas, so 10 ideas only.

And then, over a period of several years, he tracked their decision making. I think a total of 1,800 or so total investments made across those managers over that duration or a period of time. He wrote this book on what he found out about it. One of the key things he found out was when he analyzed the data, the best stock pickers, fund managers in the world, investing their top 10 ideas, only 49% were winning stocks. So, basically, these great stock pickers, it was a flip of a coin whether that stock would actually go up or down. What was also interesting was the best-performing fund manager that he was with, he was right 3 out of 10 times. So, even, less than the average.

Tobias: That’s like VC-type distribution.

Ian: Yeah, it feels like that. It’s interesting, too, because I think if you would ask this question to stock pickers or fund managers, “What’s your hit rate?” They’re going to say 60%. They’re not going to say 40%, because it sounds like you’re a moron, because you’re right, 4 out of 10 times. You’re a professional. You’re getting paid to do this.

Jake: Yeah.

Ian: They’re not going to say 80%, because that sounds like you’re just being overconfident. So, everybody just falls– [crosstalk]

Jake: Well, it depends on how attractive the person is that you’re telling the story.

Ian: [laughs] Right. So, nobody says 40% or 50%, because it just– Nobody wants to admit that it’s a coin flip at least you’re right or wrong.

Jake: Yeah.

Ian: And so, that was one of the first points he made. But it also proved that the money is made after the decision, and the money is made on how you react to when stocks are winning or losing, if half the time they’re winning or losing.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

VALUE: After Hours (S08 E03): Why Even Elite Investors Are Only Right Half the Time

Read next