Performance beyond inertia

CONTRARIAN INVESTOR

Let me outline two scenarios. The first involves a fund manager who is constantly analysing his/her fund's out-performance against not only risk free returns (whatever they may be) but also their immediate peers in the sector.

You are led into a meeting where you are dazzled by the ratios on display. There is the information ratio, the Sharpe ratio (a popular one that), Treynor’s Ratio, even Jensen’s Alpha. All of them tell you your client’s money looks to be in the hands of a bunch of smart guys and gals who understand risk. They also appear to comprehend the idea they must prove their alpha against the nearest equivalent index tracking vehicle.   In the second meeting you are introduced to the gruff fund manager who is one of those old fashioned types who knows his/her stock turnover is low. They are a...