Today marks the thirtieth anniversary of an investment approach developed to aid investors who were searching for a path to long-term wealth creation.
Back in 1986, the term “portfolio approach” was often met with blank stares while the listener waited for a breathless tale of a “can’t miss” stock idea. Goodreid was amongst the first retail investment managers who preached diversification and portfolio structure, and even openly talked of how they’d approach inevitable stock loss situations, in an unemotional and measured way.
From its early days, Goodreid also focussed on long-term results, knowing that any conclusions of short-term success or failure were likely more emotionally impactful than fundamentally meaningful, and ran the risk of throwing the investor off a successful path.
On August 4th, the Globe and Mail reported that just 17% of large-capitalization equity fund managers in Canada outperformed their benchmark in the second quarter, which proved to be the worst quarter for active managers in at least 17 years. Similarly, the second quarter was the worst one for U.S. stock pickers in at least thirteen years, according to Merrill Lynch data which showed that a mere 18% of U.S. active managers outperformed their benchmarks during the quarter. Not surprisingly, the hue and cry for passive investments has never been louder, with a new ETF launched seemingly every other day, and with robo-advisers, albeit most of them still in in their infancy, attracting increasing investor attention. The active management world, for the most part, are taking these body blows in grudging silence, knowing full well that most active managers empirically do not keep pace with a passive index over time. We’d like to address some of the reasons why most do not, and why we believe we are different.
Market corrections are uncomfortable. Investors’ emotional responses are rooted in the worry that a catastrophe will occur. Our companies go bankrupt. Stock prices go down and STAY DOWN…or become worthless.
The plain truth is that there is no basis for this happening. Stocks are not priced in a vacuum. Simply stated, the more money companies generate and the faster they grow, the more they are worth.