How good are fund managers?
Every Sunday, financial daily The Hindu Business Line (BL) publishes an interesting section called ‘Basket of X’ in its Investment world page. Every week, BL invites a fund manager from a leading fund house (it calls it ‘X’) and allows him to pick 5 stocks of his choice that he thinks will give best returns in a week going forward. BL does not reveal the name of this fund manager and instead calls him ‘Don Diego De La Vega’. Set of these five stocks, selected by Don Diego (Fund Manager), is called the ‘Basket of X’. Then there is another basket of 5 stocks that are randomly selected by BL. Next week, this Basket of X is compared with the basket of random selection, based on the return generated by them in one week time. Whichever basket generates higher return is the winner of the week.
I have compiled this year’s (till 12th Sept 2010) Don Diego’s performance over random selections. It is interesting to note that most of the time these fund managers (Don Diego) have underperformed the random selections. To be precise, out of a total of 36 times, Random selections have managed to beat Don Diegos’ selections 21 times, whereas Don Diegos have managed to beat random selections only 15 times. Also out of these 36 performances, 16 times Don Diegos’ selections have generated negative returns. In contrast, random selections have given negative returns only 11 times.
Though I am not trying to prove anything here, but the question here is that how good are our so called financial market wizards/fund managers. Looking at the Don Diego’ track record we can say that Efficient Market theorists have some merits in their arguments. Especially the one where they say, capital market experts (read fund managers) are good for nothing!
|Week||Don Diego’s Return (%)||Random Selection Return (%)||Winner|