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Article

Chasing Performance and Identifying Talented Investment Managers

Robert Ferguson, Anna Agapova, Dean Leistikow and Joel Rentzler
The Journal of Investing Spring 2018, joi.2018.1.067; DOI: https://doi.org/10.3905/joi.2018.1.067
Robert Ferguson
is a managing partner at ATG Enterprises in Coral Gables, FL
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Anna Agapova
is an associate professor of finance at Florida Atlantic University in Boca Raton, FL
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Dean Leistikow
is a professor of finance at Fordham University GBA in New York, NY
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Joel Rentzler
is a professor of finance in the Zicklin School of Business at CUNY in New York, NY
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Abstract

A common refrain from investors is that they have bad luck in hiring investment managers. Their managers’ post-hire performance tends to be disappointing relative to their pre-hire performance. This may be because of performance-based hiring and firing. The literature documents the practice of chasing performance. This article illustrates that the probability that a talented manager’s performance will exceed the best in a pool of untalented managers can be surprisingly small, even for long time periods; hence, chasing performance is unlikely to result in choosing the best managers. This article also provides a framework for mitigating the detrimental effects of chasing performance.

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The Journal of Investing: 30 (1)
The Journal of Investing
Vol. 30, Issue 1
December 2020
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Chasing Performance and Identifying Talented Investment Managers
Robert Ferguson, Anna Agapova, Dean Leistikow, Joel Rentzler
The Journal of Investing Feb 2018, joi.2018.1.067; DOI: 10.3905/joi.2018.1.067

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Chasing Performance and Identifying Talented Investment Managers
Robert Ferguson, Anna Agapova, Dean Leistikow, Joel Rentzler
The Journal of Investing Feb 2018, joi.2018.1.067; DOI: 10.3905/joi.2018.1.067
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  • Article
    • Abstract
    • LITERATURE REVIEW
    • THE PARABLE OF THE UNTALENTED INVESTMENT MANAGERS
    • REAL LIFE: TALENTED AND UNTALENTED MANAGERS
    • WHAT THE INVESTOR SHOULD FOCUS ON AND SEEK
    • BAYES’ THEOREM, THE CONDITIONAL PROBABILITIES OF THE CAUSES OF AN EVENT
    • THE TRADITIONAL STATISTICAL PROCEDURE FOR DETERMINING TRUE ALPHA
    • TWO EXTREME EXAMPLES THAT ILLUSTRATE HOW BAYES’ THEOREM CAN HELP
    • TWO ILLUSTRATIVE EXAMPLES of HOW BAYES’ THEOREM CAN HELP
    • ASSESSING AN INVESTMENT PROCESS’S A PRIORI PROBABILITY OF POSITIVE TRUE PERFORMANCE
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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