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I, like many people in first year at Sauder, am interested in going into finance as my specialization.  The finance 2 class prompted me to research and learn more about finance.  This led me to Benjamin Felix’s blog, where he explains why it is so hard to beat the market, even if you are a smart portfolio manager.

Felix explains that in the ultra competitive world of finance, portfolio managers rarely beat the market rate of growth in their portfolios.  Almost all of them are certified and highly educated, which has led to a market where trades are almost bets; one manager sells because they think the stock will go down, and another buys as they think it will go up.  Only one will win.  As all stocks can only go one way, over an entire portfolio, almost all managers win some and lose some at about the same rate as the market grows.

Before reading Felix’s blog and watching the video in it, I believed that good portfolio managing was simply down to good analysis and timing of buying and selling stocks or bonds.  In class we learned about the ways the PMF program manages their portfolio, and similarly how the Canadian Pension Plan Investment board invests and makes money.  Although we were shown very convincing and thorough analysis, I wonder if that is good enough to make good returns.  Could it be the difference in beating the market? In the case of the CPPIB, would market level returns be acceptable, especially if the market goes down?  As a government using taxpayer dollars, does that change the amount of risk they are willing to take to get decent returns?  On the CPPIB website they outline similar active management techniques that Felix explains are not so effective.  I am sure the government would not to anything ineffective, but Felix’s blog has left me questioning how the CPPIB’s or any finance professional’s business is really conducted, and additionally, with an even greater interest in finance.

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