The Summer Olympics are just a memory at this point. But, I still can visualize some of the races and events that unfolded over the two weeks in July and August. Some of the events had plenty of hype leading up to the Olympics. Would Usain Bolt take back the title of the World’s Fastest Man in the 100 meters – after losing to his countryman earlier in the year? How many medals would Michael Phelps win this time? Would Misty May-Treanor and Kerri Walsh-Jennings continue their utter dominance in women’s beach volleyball?
These two events and the related athletes can be likened to investment managers, in a sense. We look at these athletes and make assumptions that they are going to win every race they enter. This is based on their past history of winning races at the Olympic level – despite the odds of repeating over and over again are against them.
The same can be said of investment managers. Davis Advisors did a study of “top performing large cap investment managers from January 1, 2002 to December 31, 2011 who suffered a three year period of underperformance.” The results show that:
- “96% of these top managers’ rankings fell to the bottom half of the peers for at least one three year period.
- A full 68% ranked among the bottom quartile of their peers for at least one three year period, and
- 35% ranked in the bottom decile for at least one three year period.”
The takeaway here is that even the best performers often suffer periods of underperformance. Just ask Michael Phelps, who didn’t win as many events as he hoped – or was predicted to win. Or, just ask Usain Bolt in the lead up to the Olympics when he lost in the event in which he owned the world record. Even the infallible Misty May-Treanor and Kerri Walsh-Jennings – who hadn’t lost a set in women’s beach volleyball in any Olympics they competed in – finally lost a set in the 2012 edition.
What should you take away from this? When these athletes lost, did we all of a sudden think they lost their ability, skill and talent to become an also-ran? Should we have picked a different athlete to root for? No. They are still the fastest, the most talented and the best at what they do. The same overall view can be used with investments. Don’t panic when a manager or fund has a brief period of underperformance. Odds are, it isn’t a long term situation.
If you have any questions about the Olympics or your investments, don’t hesitate to give us a call.