In recent years, we have constantly been reading about how stock markets have been rallying and this in turn has been resulting in fund managers having a headache (LINK). Why? Clients when comparing the fund’s performance and the Index’s performance would probably only see a marginal difference. Perhaps the fund may even underperform the index net of fees. Furthermore, this has resulted in managers ‘closet indexing’ (LINK) and this phenomenon has been on the rise (LINK). Hence, this led me to think of a story that we are all very familiar with.
The Hare and the Tortoise
The Hare was once boasting of his speed before the other animals. “I have never yet been beaten,” said he, “when I put forth my full speed. I challenge any one here to race with me.”
The Tortoise said quietly, “I accept your challenge.”
RGA Investment Advisor 2Q20 Commentary: The Tale of Two Markets
RGA Investment Advisor commentary for the second quarter ended July 2020, titled, "The Tale of Two Markets." Q2 2020 hedge fund letters, conferences and more In our Q1 2019 commentary we expressed how “COVID-19 will kick off one of the most profound reshaping of our world any of us will see in our lifetime,” accompanied Read More
“That is a good joke,” said the Hare; “I could dance round you all the way.”
“Keep your boasting till you've beaten,” answered the Tortoise. “Shall we race?”
So a course was fixed and a start was made. The Hare darted almost out of sight at once, but soon stopped and, to show his contempt for the Tortoise, lay down to have a nap. The Tortoise plodded on and plodded on, and when the Hare awoke from his nap, he saw the Tortoise just near the winning-post and could not run up in time to save the race.
Then said the Tortoise: “Plodding wins the race.”
– Aesop Fables
“Value wins the race”
Very much like the race between the Hare (Mr. Market) and the Tortoise (Fund Managers/Investors), we may underperform the market in the short run. However, as much as Mr. Market is swing in the short run, as long us investors keep true to finding value, we will eventually outperform the markets.