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WealthTrack: Guest: David Winters, Manager, Wintergreen Fund
FYI: As investors’ move in droves to passive, low cost index funds, one veteran money manager is sounding the alarm. Wintergreen Fund’s David Winters says index funds are a dangerous market mania, akin to other market bubbles. Regards, Ted http://wealthtrack.com/recent-programs/premium-winters-2/
Web Extra: Active Opportunities: (Scroll & Click On Web Extra)
How hard has it been to be an active mutual fund manager, during a six year bull market, when you and most other active fund managers have underperformed passive index funds? That’s the question we put to Wintergreen Fund’s David Winters.
Well, neither Consuelo Mack nor David Winters disappointed in this interview. Both were consistent with expectations.
Mack questioned Winter’s recent sub-par performance and his funds high cost structure. Winters mixed defense and offense claiming high research costs and a deep value seeking investment policy that is now the exception among active fund managers.
Winters noted that his contrarian’s style is especially out of favor because institutional investors are overly infatuated and committed to Index products. He believes the roughly 30% commitment to Indexing is a bubble scenario that will burst.
Of course, the issue is when the bubble will burst. That is unknown and unknowable. Until that time, truly active fund managers who own a largely active share portfolio are likely to underperform by Winters’ measure.
The Winters’ world model is reminiscent and similar to what came to be known as the Keynes Beauty Contest (KBC) model. To refresh your memory, here is a brief summary of the KBC from an old NY Times article.
“John Maynard Keynes supplied the answer in 1936, in “The General Theory of Employment Interest and Money,” by comparing the stock market to a beauty contest. He described a newspaper contest in which 100 photographs of faces were displayed. Readers were asked to choose the six prettiest. The winner would be the reader whose list of six came closest to the most popular of the combined lists of all readers.”
“The best strategy, Keynes noted, isn’t to pick the faces that are your personal favorites. It is to select those that you think others will think prettiest. Better yet, he said, move to the “third degree” and pick the faces you think that others think that still others think are prettiest.”
Institutional advisors and investors are the cream of the crop. They are the smartest, the best informed, have the most research resources, and have the most impact on the marketplace than anyone else. On a daily basis, this cohort accounts for 70% of the market’s daily trades. It is foolish to fight their current practices.
Regardless of Winters’ best intentions and judgment, if these institutional investors continue to favor Index products, prices on these products will continue to dominate price movements. My market opinions will have zero impact on market pricing; theirs will be decisive. Until these dominant players emphasize low P/E stocks, Winters’ performance will suffer.
Surely a change will happen someday, but few among us know when that will happen. I’m not among those few prescient souls. I’ll go with the flow. Stay strong on this 4th of July.
Comments
Thank you Ted for the Link.
Well, neither Consuelo Mack nor David Winters disappointed in this interview. Both were consistent with expectations.
Mack questioned Winter’s recent sub-par performance and his funds high cost structure. Winters mixed defense and offense claiming high research costs and a deep value seeking investment policy that is now the exception among active fund managers.
Winters noted that his contrarian’s style is especially out of favor because institutional investors are overly infatuated and committed to Index products. He believes the roughly 30% commitment to Indexing is a bubble scenario that will burst.
Of course, the issue is when the bubble will burst. That is unknown and unknowable. Until that time, truly active fund managers who own a largely active share portfolio are likely to underperform by Winters’ measure.
The Winters’ world model is reminiscent and similar to what came to be known as the Keynes Beauty Contest (KBC) model. To refresh your memory, here is a brief summary of the KBC from an old NY Times article.
“John Maynard Keynes supplied the answer in 1936, in “The General Theory of Employment Interest and Money,” by comparing the stock market to a beauty contest. He described a newspaper contest in which 100 photographs of faces were displayed. Readers were asked to choose the six prettiest. The winner would be the reader whose list of six came closest to the most popular of the combined lists of all readers.”
“The best strategy, Keynes noted, isn’t to pick the faces that are your personal favorites. It is to select those that you think others will think prettiest. Better yet, he said, move to the “third degree” and pick the faces you think that others think that still others think are prettiest.”
Institutional advisors and investors are the cream of the crop. They are the smartest, the best informed, have the most research resources, and have the most impact on the marketplace than anyone else. On a daily basis, this cohort accounts for 70% of the market’s daily trades. It is foolish to fight their current practices.
Regardless of Winters’ best intentions and judgment, if these institutional investors continue to favor Index products, prices on these products will continue to dominate price movements. My market opinions will have zero impact on market pricing; theirs will be decisive. Until these dominant players emphasize low P/E stocks, Winters’ performance will suffer.
Surely a change will happen someday, but few among us know when that will happen. I’m not among those few prescient souls. I’ll go with the flow. Stay strong on this 4th of July.
Best Wishes.