Frank Thoughts: The Performance Game
Frank Boland
June 20, 2011

It was a warm summer day in downtown Boston in the 1960s.  I had the top down on my burgundy 1966 Lincoln Continental convertible and sat in traffic listening to closing stock prices.  The car, complete  with black leather seats and suicide doors, was similar to the one in which Jack Kennedy had been shot  three years earlier.  As the stock quotes ended, I turned up the volume on the wooden dashboard and listened to the announcer read off the closing prices of 10-12 mutual funds.  All were Boston-based and all were managed for absolute performance.  Unfortunately, that performance focus changed with the introduction of style bias. 

      Style bias was the conceptual invention of the financial community to SELL more mutual funds to the investing public.  Keep in mind the mantra of brokerage firms on commission is not to make money for the customer but to make money from the customer.  Different investment styles created additional products; products to sell the customer.  The investment style concept was based on the reasonably sounding premise of, “You want your assets to be diversified.” Unsaid was that different styles can cancel each other out!  When the market goes up, style diversification often results in the significant underperformance of a client’s overall portfolio; and in a bear market, as we recently learned again, all styles go down together. 

      The concept also surreptitiously shifted performance responsibility … in the choice of funds … from the investment manager to the individual investor.  And what qualifies the individual investor to make the choices?  Nothing .  Moreover, the investment manager has only to outperform others in his style box … not the stock market.  Big, big difference!  It’s no wonder that many people have become disenchanted with their investment performance the past decade.  The stock market has, in fact, gone virtually nowhere.  And many of these investment styles have actually performed worse than the overall market.

      So, how have we at Contravisory Investment Management so dramatically outperformed the stock market for the past 11 years?  It is in our investment process; long term relative price strength analysis.  We simply seek to own stocks that go up more than the market when the market goes up … and ones that go down less when the market declines.  Who wouldn’t want to do that?  Short term, day-to-day, week-to-week, month-to-month the stock market is totally inefficient.  But over the longer term … six months, … twelve months, … two years, the market is remarkably efficient … even prescient!  We seek to take advantage of that prescience.  Our goal is simply to perform for our clients.  It’s why they gave us their money.  And that goal really isn’t any different than it was nearly 50 years ago when I sat in my car in Boston and listened to how Fidelity, Putnam and Mass. Investors Trust et al. performed that day. 



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