Cullen Roche wrote an interesting little paper last year showing durations for a wide series of different investments. He computed that global equities has a duration of 17.75 years and REITs 18.75 years. Based on several different people's viewpoints, the duration is described as the point in time of indifference to a decline considering the other aspects, such as future dividend streams, from the investment. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4185202
So the correct time period to evaluate an equity manager's performance then is at that point of indifference or beyond. The equity manager just has to negotiate with his bosses that they can't judge his performance for 20 years. I think the only equity manager who has ever pulled that one off is Warren Buffet. It only took him 50 years to get to that level of respect. It was in the GFC 2008-2009 where he was the big gun still standing bailing out the young whipper snappers at Goldman Sachs etc. who only had 20-30 years of experience . That is when people realized that Buffet understood investments over long time horizons unlike his peers. A lot of people have already forgotten that lesson. Prior to that, it was the actual JP Morgan who was in a similar position in 1908 who had that perspective.
Peter Lynch's fabulous run at Fidelity Magellan was from 1977-1990, only 13 years. His successors did not fare so well.
Active managers will probably have a chance to shine over the next decade if this chart on expected S&P 500 total returns over the next 10 years is correct. However, probably most of the managers will have lost their jobs for not keeping up with the recent run of the S&P 500 over the past decade, so it will be new ones who will get a chance at glory. https://alephblog.com/2023/06/17/estimating-future-stock-returns-march-2023-update/
I have been working from home in a technical field for 3 years now. My pool of mentees has actually expanded because I now have people working on my projects from two countries and multiple states. The under 30 folks are eager to learn and take well to Teams calls. Successful mentoring is an attitude. If you are interested in it, you can be mentored from 3,000 years away. If you are not interested, being in the same conference room won't help.
More thoughts on WFH - it was actually the young women who became mothers who started that trend in our company in the mid-2000s. This was a new challenge because young technical women simply had not been present at all in these companies until the mid 1990s in addition to the technology not existing to allow it easily. It quickly became evident that the employment conditions were going to have to be flexible if you were going to keep these excellent workers. They can work 20-40 hrs per week from home without skipping a beat. They take maternity leave, work part-time for some period, and then work full-time when the kids get older. Their hours are often not synchronized with the typical office schedule. Many have stayed with the company for 20 years now instead of having major breaks or job changes. A number have had major promotions while raising kids working from home. That would have been unimaginable 30 years ago.
That has now morphed into both men and women who have had to move away from their "home office" for personal reasons, usually something to do with family. They have established themselves and are working from their new home, or from another unrelated office location, with their original teams. We would have lost them 20-30 years ago as they would have had to take new jobs in their new physical locations. Similarly, we are hiring older technical staff who have separated from their long-term companies and they work from wherever they are, sometimes in pretty remote locations. I know one very technical company where a couple of their staff actually live on a sailboat that can be in various places around the globe and connect through satellite links.
I believe the numbers that only about 20% of the workforce have jobs where WFH is a possibility. The challenge for CRE is that those workers are often some of the highest paid in the country with offices in some of the priciest real estate in the country. So Class A office CRE is going to be in a world of hurt for a few years. Most other CRE should be able to just bop along as long as they are not over-leveraged.
In this sentence, “In that case, big tech’s overwhelming dominance may slow a bit, and so will the benefits of investing in emerging markets and smaller firms”, did you mean the *disincentives* of investing in emerging markets and smaller firms?
If my financial advisor thought she could beat the best performing segment by diversifying, I’d fire her on the spot. That’s not only innumerate, but misses the point of diversification entirely. How can I expect help with the tricky things from someone who doesn’t understand the simple things?
Re: Beating S&P 500
Cullen Roche wrote an interesting little paper last year showing durations for a wide series of different investments. He computed that global equities has a duration of 17.75 years and REITs 18.75 years. Based on several different people's viewpoints, the duration is described as the point in time of indifference to a decline considering the other aspects, such as future dividend streams, from the investment. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4185202
So the correct time period to evaluate an equity manager's performance then is at that point of indifference or beyond. The equity manager just has to negotiate with his bosses that they can't judge his performance for 20 years. I think the only equity manager who has ever pulled that one off is Warren Buffet. It only took him 50 years to get to that level of respect. It was in the GFC 2008-2009 where he was the big gun still standing bailing out the young whipper snappers at Goldman Sachs etc. who only had 20-30 years of experience . That is when people realized that Buffet understood investments over long time horizons unlike his peers. A lot of people have already forgotten that lesson. Prior to that, it was the actual JP Morgan who was in a similar position in 1908 who had that perspective.
Peter Lynch's fabulous run at Fidelity Magellan was from 1977-1990, only 13 years. His successors did not fare so well.
Active managers will probably have a chance to shine over the next decade if this chart on expected S&P 500 total returns over the next 10 years is correct. However, probably most of the managers will have lost their jobs for not keeping up with the recent run of the S&P 500 over the past decade, so it will be new ones who will get a chance at glory. https://alephblog.com/2023/06/17/estimating-future-stock-returns-march-2023-update/
Mentoring and WFH
I have been working from home in a technical field for 3 years now. My pool of mentees has actually expanded because I now have people working on my projects from two countries and multiple states. The under 30 folks are eager to learn and take well to Teams calls. Successful mentoring is an attitude. If you are interested in it, you can be mentored from 3,000 years away. If you are not interested, being in the same conference room won't help.
More thoughts on WFH - it was actually the young women who became mothers who started that trend in our company in the mid-2000s. This was a new challenge because young technical women simply had not been present at all in these companies until the mid 1990s in addition to the technology not existing to allow it easily. It quickly became evident that the employment conditions were going to have to be flexible if you were going to keep these excellent workers. They can work 20-40 hrs per week from home without skipping a beat. They take maternity leave, work part-time for some period, and then work full-time when the kids get older. Their hours are often not synchronized with the typical office schedule. Many have stayed with the company for 20 years now instead of having major breaks or job changes. A number have had major promotions while raising kids working from home. That would have been unimaginable 30 years ago.
That has now morphed into both men and women who have had to move away from their "home office" for personal reasons, usually something to do with family. They have established themselves and are working from their new home, or from another unrelated office location, with their original teams. We would have lost them 20-30 years ago as they would have had to take new jobs in their new physical locations. Similarly, we are hiring older technical staff who have separated from their long-term companies and they work from wherever they are, sometimes in pretty remote locations. I know one very technical company where a couple of their staff actually live on a sailboat that can be in various places around the globe and connect through satellite links.
I believe the numbers that only about 20% of the workforce have jobs where WFH is a possibility. The challenge for CRE is that those workers are often some of the highest paid in the country with offices in some of the priciest real estate in the country. So Class A office CRE is going to be in a world of hurt for a few years. Most other CRE should be able to just bop along as long as they are not over-leveraged.
Good one to drop before your break. Looking forward to the book. I appreciate your insights.
In this sentence, “In that case, big tech’s overwhelming dominance may slow a bit, and so will the benefits of investing in emerging markets and smaller firms”, did you mean the *disincentives* of investing in emerging markets and smaller firms?
If my financial advisor thought she could beat the best performing segment by diversifying, I’d fire her on the spot. That’s not only innumerate, but misses the point of diversification entirely. How can I expect help with the tricky things from someone who doesn’t understand the simple things?
Can't wait to read the next book.