A recent Financial Times article (“End to ‘Alpha’ spells trouble for fund managers”) presents the opinion that, with the rise in information accessibility, it has become more difficult – or even impossible – for active managers to consistently beat the market. “The skills needed to select securities that worked as stocks and bonds rose in value for much of the preceding three decades have simply become out-of-date….Experienced investors, then, struggling to match past performance may just be baseball players in a world suddenly playing cricket.”
We disagree. Our equipment may be evolving, but the game remains the same.
It may be true that, with additional scouts poring over copious amounts of easily accessible stats, the solid, undervalued players are more difficult to find. At our last Client Day in May, Allan MacDonald, Senior Vice President and Portfolio Manager for North American small cap equities, spoke to this topic. When he began his career two decades ago, “It was a great time to be an investor because the information deficit meant there were hundreds, even thousands, of mispriced securities – literally seas of undervalued stocks to choose from.” Now he finds professionals and amateurs alike using the abundance of new technology to access information that was not possible to source decades ago, making the search for undervalued companies increasingly difficult – but not impossible.
It’s important to note that as information becomes more readily accessible, it loses its value. Something that is free, by definition, is valueless. What gives information value is its combination with experience. As Richard Rooney, President and Chief Investment Officer at Burgundy, likes to say, “When information is free, experience is the only thing that can’t be replicated or bought.” The old saying has never been “information is power.” Knowledge – that combination of information and experience – is power. So, in a world of free (read: valueless) information, where an information advantage is increasingly difficult to obtain, the experience necessary to make quick and effective interpretations (while weeding out the trivial facts) is of extreme importance. And at Burgundy, our Portfolio Managers possess a collective investment experience of almost 250 years.
Mark Twain has said that history doesn’t repeat itself, but it does rhyme. Burgundy’s collective experience increases the probability that we have previously encountered similar market environments and therefore can more appropriately manage our clients’ investments by drawing on our wider context of knowledge. In an age of free information, experience is the key.