2 More Of The Greatest Investors Who Don’t Manage A Mutual Fund

&l;p&g;&l;img class=&q;dam-image getty size-large wp-image-1059897308&q; src=&q;https://specials-images.forbesimg.com/dam/imageserve/1059897308/960×0.jpg?fit=scale&q; data-height=&q;637&q; data-width=&q;960&q;&g; Some of the best fund managers don&s;t work on Wall Street.

One of the most common reasons why people&s;s portfolios have not performed well is because they did not choose great fund managers. The current issue of Forbes includes the story of Dr. Herbie Wertheim, an optometrist who is one of &l;a href=&q;https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire/#6525596122e8&q;&g;the greatest investors you&s;ve never heard of&l;/a&g;. I have long believed that there are more great investors besides Warren Buffett, who work outside of the mutual fund industry, and I have devoted a great deal of effort to find them. In addition to Buffett and Wertheim, I would add Wayne Himelsein and Tony Mitchell to the list. Let me tell you why.

&l;strong&g;Wayne Himelsein&l;/strong&g;

Quantitative investing has become all the rage. But I have been watching Wayne Himelsein hone his investment algorithms for more than 18 years.

A lot of quant algorithms work great on historical data. The problem is that the future is never exactly like the past so I would say, almost categorically, that algorithms that work well on historical data don&s;t work as well going forward.

Because of this, quants are always fiddling with their algorithms, increasing or decreasing the weight of this or that factor, to get a better result.

No quant I know of has used the same algorithm for more than a couple of years. For this reason, I&s;ve never come across an algorithm with a long enough track record going forward to evaluate it.

However, although algorithms change, the manager is constant so it is possible to evaluate the skill of the manager.

Over 18+ years — through the tech bubble, the financial crisis and corrections to numerous to count — Wayne has averaged 11.77% a year, more than double the S&a;amp;P 500&s;s 5.70% return over the same period. Moreover, Wayne&s;s return is after deducting 1.95% a year for management fees while the S&a;amp;P 500 return is before any fees.

&l;strong&g;Tony Mitchell&l;/strong&g;

When I started watching Tony Mitchell in 2000, there were a lot of internet mutual funds that invested in companies that didn&s;t have revenues, much less profits. In contrast, Tony&s;s strategy has been to invest in &q;companies with great products and great brands that show promise of continued growth.&q;

By focusing on a technology&s;s value to the customer, instead of the technology itself, Tony&s;s portfolio has adapted as each wave of tech companies found new ways to benefit customers.

Investing in companies that create value by serving their customers better than anyone else is the essence of Buffett&s;s investment style. Tony applies this strategy to find companies that use technology to increase their value to their customers.

Tony has been running an Internet Fund at Marketocracy for more than 18 years that has averaged 17.06% a year (again after deducting 1.95% a year in management fees), almost triple the S&a;amp;P 500&s;s return of 5.79% over the same period.

&l;strong&g;The Greatest Mutual Fund Managers&l;/strong&g;

I recently updated my list of the greatest mutual fund managers and published my results &l;a href=&q;https://www.forbes.com/sites/kenkam/2019/02/08/investing-with-the-greatest-mutual-fund-managers-2/&q;&g;here&l;/a&g; and &l;a href=&q;https://www.forbes.com/sites/kenkam/2019/02/21/investing-your-401k-with-the-greatest-mutual-fund-managers/#46a50b13da5a&q;&g;here&l;/a&g;.

When I was doing the research, I noticed that there are not a lot of mutual fund managers with a 15-year track record. Out of 6,963 U.S. equity mutual funds in Morningstar&s;s database, only 184 managers have a tenure of 15 or more years.

The S&a;amp;P 500 (The Market) has averaged 8.30% over the past 15 years. Only 77 of the 184 mutual fund managers with a 15-year tenure did at least as well. But, simply matching the market is not good enough in my book.

In order to justify the risk of active management, a good manager has to beat the market by enough to make a difference, after all fees.&l;/p&g;

Of the 77 managers who did at least as well as the market, 42 outperformed by 1% a year or more, 18 beat the market by 2% a year. Only seven beat by 3% a year, and none beat the market by 4% a year.

Beating the market by 3% a year for 15 years is nothing to sneeze at. It is 36% more than the S&a;amp;P 500&s;s return over the last 15 years after fees. But the seven best mutual fund managers&s; margin of outperformance is not as big as Dr. Herbie Wertheim, Wayne Himelsein or Tony Mitchell. It&s;s hard to avoid the conclusion that the best mutual fund managers are not the best managers.

Wayne and Tony do not manage mutual funds. Their funds are investment options for clients of our separately managed account program. If you would like to know more about them &l;a href=&q;mailto:ken.kam+Forbes@marketcracy.com&q; target=&q;_blank&q;&g;contact me&l;/a&g;.

This article is part of a series I write for those who want to get their portfolios back on track. To be notified when the next installment is published, &l;a href=&q;https://paths.marketocracy.com/lists/?p=subscribe&a;amp;id=8324&q; target=&q;_blank&q;&g;click here&l;/a&g;.&l;/p&g;

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