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In investing, good things come to those who wait

Adriaan Pask, CIO, PSG Wealth

Warren Buffett once said: “The stock market is a device for transferring money from the impatient to the patient.”

Investors who chase the latest top performers, tend to get rid of managers at the first sight of turbulence. However, ditching recent losers in the pursuit of last month’s winners, especially if this is prompted by short-term turbulence, can be a mistake. Investors who stuck to their guns during the extremely volatile few months earlier this year would have been truly rewarded.

Bouts of underperformance are not only for novice investors

Our experience has taught us that, although expert fund managers can deliver sound long-term results, this does not come without short periods of underperformance, especially during extreme times. Any reputable fund manager can tell you that risk is part and parcel of any investment cycle and that periods of poor relative performance from underlying managers are inevitable. The table below refers to an excellent case study from one of the world’s most successful investors.

Table 1: Performance example 


Source: Morningstar Direct


If you take a look at the performance example shown in table 1, it is easy to assume that most people wouldn’t want to invest with this fund manager. However, these figures were returns from investments made by one of the greatest investors in US history, Warren Buffett. The table illustrates the performance of the A-shares of Buffett’s Berkshire Hathaway, in the five years leading up to June 2000, relative to the Vanguard S&P 500 Index Fund and the US Large Cap blend peer group.

Berkshire Hathaway managed to deliver an annualised total return (in USD) of 13.71% over three decades (May 1990 to May 2019). This is 4.30% per year more than that of the Vanguard S&P 500 Index Fund. Simply put, if you invested $1 million in the Vanguard S&P 500 Index Fund in May 1990, it would have been worth $14.6 million in May 2019. The same investment in Berkshire Hathaway would have grown to $44.3 million.

Buffett lagged the market one out of every three years, and in many cases this underperformance was sizable, proving that even the most seasoned managers also go through periods of underperformance.

Sticking to a blend of top fund managers yields results

Given the current volatile market environment, there is a sizable gap in performance between the top and bottom fund managers. Even well-known fund managers can be found at the bottom of the pack. An excellent way to limit drawdowns from specific managers is to employ a multi-manager approach. This does not just ensure diversification, but can counter the effects of short-term market volatilities by moving assets between various funds as and when appropriate.


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