As we come into the end of 2015, volatility is back in the equity markets and near-panic conditions exist in some parts of the high yield market.  Active managers are likely to under-perform again this year.  With this confluence of factors, it seemed appropriate to look back at Charles Ellis’s seminal work , Winning the Loser’s Game,

Ellis, a long time investment consultant, and an excellent author dives deeply into the market and whether or not it is even possible to achieve market beating performance.

Here are a few snapshots from his work:

• Four possible ways to beat market:
• market timing
• asset selection
• changes in portfolio structure/strategy
• long-term investment philosophy
• For most investors the most important thing is to be invested.  
• Paradox – Funds are often being managed with their purpose and objectives being misaligned on the time dimension
• Appropriate investment policy can therefore be the most important way to achieve superior investment results
• 6 questions any investor should ask before selecting a manager
• What are the risks of an adverse outcome?
• What are the emotional reactions to an adverse outcome?
• How knowledgeable is the investor?
• How important is the portfolio to the overall financial position?
• Legal restrictions?
• Any unanticipated consequences that could arise from fluctuation of value?
• “time is archimedes’ lever in investing.”
• the real risks in the long run are the risks of inflation and excessive caution
• the great secret for success in long term investing is to avoid serious losses
• policy is the most effective antidote to panic
• Policy is to establish useful guidelines that are appropriate for your objectives and the realities of the markets
• First understanding of your objectives and tolerance for risk
• spending decisions should most definitely be governed by investment results
• problem definition and problem solving should not be delegated to investment managers
• “don’t confuse brains with a bull market”
• a few simple tests of investment policy
• Is the policy carefully designed to meet your real needs and objectives?
• is the policy written so clearly and explicitly that a competent stranger could manage the portfolio and conform to your intentions
• would you have been able to sustain commitment to the policies during the markets we have experienced over last 15, 20, 30, 50 years?
• would the manager have been able to maintain fidelity over the same periods
• would the policy have achieved our objectives?
• Managing managers
• believes in concentrating with 1-2 managers
• know your objectives
• do not expect more than they can deliver
• select based on competence