Conversation with Taylor Cohen
Conversation with Taylor Podcast interview. Perhaps foreseeable, this is the most challenging interview/podcast I have ever done.video Here And embed below
My comments on effective markets and active management provoke a lot of emails.
I mentioned Jonathan Berk (Jonathan Berk). I should also mention his co-authors Rick Green and Jules Van Binsbergen. He said that even if investors don’t Any benefit, how can active management continue. The basic idea is really smart: the manager has 5% of the alpha skills in $1 billion, that is, he can earn $500k, but the skills cannot be expanded. Therefore, he earned 5%, charged a fee of 1%, and the investor got 4%. Investors saw his outstanding performance and hurriedly set foot. Now, he manages $50 million in assets. He still made half a million dollars. He charges a 1% fee, and the investor gets an alpha value of zero. This is balanced-if the investor leaves, the alpha to the investor will rise again, and then they will return. The zero alpha that investors get is the same as the zero alpha they get in the index, so why not do that. This is what we see. The cost is kept in balance, and the cost is equal to the alpha on average, and the cost in the later stage of the alpha is about zero, and the flow follows the performance. This seminal paper is “Mutual Fund Flow and Performance in a Rational Market”, Jonathan B. Berk, Richard C. Green Journal of Political Economy 2004 112 1269 -1295, and a series of articles that follow, Here . This is not a perfect theory, but the glass is closer to being full than empty glass, and it is an excellent starting point for understanding the supply and demand of this industry that has lasted for decades.
More generally, the general fund earns almost no alpha, and admission is almost free. The problem is to distinguish good people from bad people in prior characteristics. The filters used by academia are very weak-past returns, ratings, principal education, etc. On the other hand, now we move it all to the meta game. Picking a manager is no different from picking a stock. Skill skills, alpha skills, cost…