Good morning, good afternoon, good evening. Depending on the part of the world you’re in. This is Jonathan Satovsky of Satovsky Asset Management and on today’s episode of “Seeking Wisdom, Wealth, and Wellness,” I want to talk about the process of picking active managers.
What is the purpose and outcome you’re seeking to get? Perhaps you want better risk-return attribution. Perhaps you want downside protection. Perhaps you think there’s some asymmetry that the manager can get greater upside and less downside.
When you benchmark a particular active manager, whether in fixed income or in equities or real estate or alternatives, and you use a passive index, and even a potentially investable passive index, to measure and report the success or failure of the execution of that manager, do you recognize that in advance you have some big hurdles to overcome?
Fees, taxes, and behavioral risk.
Why is that an issue? Because as soon as you’re evaluating that manager, whether it’s in a quarter, in a year, in three years, in five years, even in ten years, you’re going to have experiences, likely – even if they’re the best in the world – 40% of the time, they’re going to be in the bottom quartile or decile of all of the managers in that particular category. And you got to ask yourself, are you going to be able to sit still and even increase your exposure during a time of maximum pain? If you are, and you believe in it philosophically to overcome those hurdles, good luck on your path to Wisdom, Wealth, and Wellness.