The Stewardship of Wealth: Successful Private Wealth Management for Investors and Their Advisors, + Website

Traditional Managers

Investing is easy. I just buy a stock and hold it ‘til it goes up. If it don't go up, I don't buy it.

—Will Rogers

It's almost impossible to express how difficult it is to identify truly outstanding portfolio managers in time to profit by investing with them. By truly outstanding, I mean managers whose outperformance relative to the broad markets and to other managers will be so great as to result in significant wealth creation for their investors. Consider that since 1970 several thousand Americans have won large lotteries—lotteries large enough to result in significant wealth for their winners. But since 1970, how many Warren Buffetts have there been? More than one, to be sure. But not thousands. Not hundreds. Not even dozens. Statisticians will tell us that playing the lottery is a fool's game,³ that in the aggregate lottery players lose far, far more money than they win, and that even the remote possibility of gaining great winnings doesn't begin to justify the cost of playing. What would statisticians tell us about the challenge of finding outstanding money managers?

And if identifying great managers weren't difficult enough, timing in the enterprise is everything. People who invested with the legendary hedge fund manager Julian Robertson early in the game had little idea how much money they were about to make. But people who invested with Robertson late in the game had little idea how much money they were about to lose. Same great manager, very different ...