Inside Baseball: Analyzing Winning Characteristics of Active Investment Managers

Cubs fan and Harris Associates PM Bill Nygren discusses some things to think about when drafting an active manager for your portfolio.

Bill Nygren is the Chief Investment Officer for U.S. Equities and Portfolio Manager at Harris Associates (advisor to the Oakmark Funds).
"When people think about picking an active manager, [they] lose all the common sense things you would think about in baseball.”

"Let’s talk about how you go about finding one of those managers that can outperform. And anybody who’s read any of the things I write for Oakmark knows I’m a big Cubs fan, love Major League Baseball. One thing we know for sure, at the end of next season, if you sum up all the wins and losses, there are going to be as many losses for Major League teams as there are wins. It’s just the math of how sports works. But because the average record is average, does that mean we’ve got no ability at all to predict who the likely winners are? So, if you were challenged with trying to find out who, or trying to predict who would win the Central Division in the National League next year, what are things you’d think about? OK, how about, you know, management, talent, historical record? Farm team? And think about all these things, the difference in talent we were talking about. Is there a winning philosophy at the organization? How much has been invested in the minor league system? You know, what’s the culture like? Is it a culture where people know how to win? What depth is there? Payroll. Or, you know, there’s a massive difference between what the worst teams and the best teams pay their players. If you think about those things, you know, the prediction ranking next year, that it’s more likely that the Cubs win the division than the Cincinnati Reds, doesn’t seem too farfetched. But for some reason, when people think about how do you go about picking an active manager, you lose all the common sense things you would think about in baseball, and I would argue, if you look about, if you look around at different active management firms, there’s a big difference in the level of talent, the level of depth to the team, how much the talent is paid. And I think those are definitely things that investors ought to think about as they try to predict which active managers are likely to win."
This material is provided for informational purposes only and should not be construed as investment advice. There can be no assurance that developments will transpire as forecasted. Actual results may vary.

The analyses and opinions referenced herein represent the subjective views of Bill Nygren as of January 10, 2018. They are subject to change at any time based on market and other conditions. There can be no assurance that developments will transpire as forecasted. Past performance is no guarantee of future results.

All investing involves risk, including risk of loss.

Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming anm investment benchmark index.

Stocks are volatile and can decline significantly in response to broad market and economic conditions. Value investing carries the risk that a security can continue to be undervalued by the market for long periods of time.