Ultimate Stock-Pickers: Active Management Not for All
Plus, Yacktman, Lynch, and Harriman share the importance of position sizing and insight on current holdings.
This analyst blog is part of our coverage of the 2016 Morningstar Investment Conference.
Three of our Ultimate Stock-Pickers--Stephen Yacktman of Yacktman Funds, Dennis Lynch from Morgan Stanley Investment Management, and Michael Keller with Brown Brothers Harriman--joined us for a panel discussion at the Morningstar Investment Conference. While much can be gleaned from their quarterly commentaries and past investing activity, there is always a little extra to be learned from live discussions. We gleaned many interesting tidbits and picked the brains of these top investors.
On the overall theme of passive versus active management, Yacktman believes it bodes well for those active managers who are providing the alpha that justifies their fees. If you deserve what you're asking for, you'll be fine. If you're not providing value, you should be, and likely will be, squeezed out over time. Yacktman also believes this potentially could make his job easier, as more people go to passive there are less competitors, and the opportunities to generate outsize returns could paradoxically increase just as people are more fully buying into the argument that there is no alpha left to be had. Lynch thinks the current trend makes perfect sense and that making the categorical argument for active management is difficult given the evidence. Combine this with the behavioral tendency of many investors to abandon ship at exactly the wrong time, and it becomes clear that being invested with actively managed funds isn't right for everyone. Lynch and Keller said there are common patterns exhibited by those managers who tend to outperform, and these included lower turnover, and its corollary, investing with a long-term view.
These managers also shared some insights regarding their current holdings as well as current stock picks. Yacktman and Keller both own and like
Lynch shared a little more of his thesis surrounding
Yacktman highlighted
Keller likes
Lynch said if there was one stock he could buy, it would be
Finally, while picking the right stocks is part of the puzzle, these managers also said being disciplined with position sizing is also extremely important. Poor position sizing can make a bad position worse, and can also make what would have been a good investment bad as well, and fortunately for investors, position sizing is always within their control.