Winning at Active Management
The Essential Roles of Culture, Philosophy, and Technology
Published on 7. July 2016
336 pages
978-1-119-05177-0 (ISBN)
Description
Winning at Active Management conducts an in-depth examination of crucial issues facing the investment management industry, and will be a valuable resource for asset managers, institutional consultants, managers of pension and endowment funds, and advisers to individual investors. Bill Priest, Steve Bleiberg and Mike Welhoelter all experienced investment professionals, consider the challenges of managing portfolios through complex markets, as well as managing the cultural and technological complexities of the investment business.
The book's initial section highlights the importance of culture within an investment firm - the characteristics of strong cultures, the imperatives of communication and support, and suggestions for leading firms through times of both adversity and prosperity.
It continues with a thorough discussion of active portfolio management for equities. The ongoing debate over active versus passive management is reviewed in detail, drawing on both financial theory and real-world investing results. The book also contrasts traditional methods of portfolio management, based on accounting metrics and price-earnings ratios, with Epoch Investment Partners' philosophy of investing on free cash flow and appropriate capital allocation.
Winning at Active Management closes with an inquiry into the crucial and growing role of technology in investing. The authors assert that the most effective portfolio strategies result from neither pure fundamental nor quantitative methods, but instead from thoughtful combinations of analyst and portfolio manager experience and skill with the speed and breadth of quantitative analysis. The authors illustrate the point with an example of an innovative Epoch equity strategy based on economic logic and judgment, but enabled by information technology.
Winning at Active Management also offers important insights into selecting active managers - the market cycle factors that have held back many managers' performance in recent years, and the difficulty of identifying those firms that truly possess investment skill. Drawing on behavioral economic theory and empirical research, the book makes a convincing case that many active investment managers can and do generate returns superior to those of the broad market.
The book's initial section highlights the importance of culture within an investment firm - the characteristics of strong cultures, the imperatives of communication and support, and suggestions for leading firms through times of both adversity and prosperity.
It continues with a thorough discussion of active portfolio management for equities. The ongoing debate over active versus passive management is reviewed in detail, drawing on both financial theory and real-world investing results. The book also contrasts traditional methods of portfolio management, based on accounting metrics and price-earnings ratios, with Epoch Investment Partners' philosophy of investing on free cash flow and appropriate capital allocation.
Winning at Active Management closes with an inquiry into the crucial and growing role of technology in investing. The authors assert that the most effective portfolio strategies result from neither pure fundamental nor quantitative methods, but instead from thoughtful combinations of analyst and portfolio manager experience and skill with the speed and breadth of quantitative analysis. The authors illustrate the point with an example of an innovative Epoch equity strategy based on economic logic and judgment, but enabled by information technology.
Winning at Active Management also offers important insights into selecting active managers - the market cycle factors that have held back many managers' performance in recent years, and the difficulty of identifying those firms that truly possess investment skill. Drawing on behavioral economic theory and empirical research, the book makes a convincing case that many active investment managers can and do generate returns superior to those of the broad market.
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William W. Priest | Steven D. Bleiberg | Michael A. Welhoelter
Winning at Active Management
The Essential Roles of Culture, Philosophy, and Technology
Book
09/2016
Wiley
€28.50
Shipment within 15-20 days
Persons
WILLIAM W. PRIEST is Chief Executive Officer, Co-Chief Investment Officer, and a co-founder of Epoch Investment Partners, and a long-time advocate of free cash flow investing. His other books include Free Cash Flow and Shareholder Yield and The Financial Reality of Pension Funding Under ERISA.
STEVEN D. BLEIBERG is a Managing Director and Global Portfolio Manager at Epoch Investment Partners.
MICHAEL A. WELHOELTER is a Managing Director, Portfolio Manager, and Head of QuantitativeResearch and Risk Management at Epoch Investment Partners.
STEVEN D. BLEIBERG is a Managing Director and Global Portfolio Manager at Epoch Investment Partners.
MICHAEL A. WELHOELTER is a Managing Director, Portfolio Manager, and Head of QuantitativeResearch and Risk Management at Epoch Investment Partners.
Content
Preface
Not Dead Yet: How the Right Culture, Philosophy, and Technology Enable Active Investment Managers to Add Value
Part I Culture
Chapter 1 Culture at the Core
The Original Organizational Culture: Command-and-Control
An Alternative Culture for Knowledge Businesses
The Partnership Culture Model
Justice and Fairness
Chapter 2 Culture in Investment Management
Values
Integrity
Trust
Culture and Clients
Firm Culture under Stress
Culture in Recruiting
Acquisitions
Evolution of Culture
Part II Philosophy and Methodology
Chapter 3 The Nature of Equity Returns
The Real Economy versus the Financial Economy
Components of Stock Returns
Price-Earnings Ratios
The Historical Makeup of Stock Returns
Chapter 4 The Great Investment Debate: Active or Passive Management?
The Debate Is Timeless
An Elegant Theory: The Capital Asset Pricing Model
Further Elegance: The Efficient Market Hypothesis
Reality intrudes
The Problem with MPT
Chapter 5 A More Human Description of Investors and Markets:
Behavioral Finance
Loss Aversion
Mental Accounting
Minimizing Regret
Overconfidence
Extrapolation and Reversal
Investor Behavior in Action
MPT Still Lives
Chapter 6 Active Versus Passive Management:
The Empirical Case
Market Regimes
Correlation and Dispersion
Company Quality
The Weight of Cash
Luck Versus Skill
Investors Voting with Their Dollars
Chapter 7 The Case for Active Management
April 2015: Investment Giants Square Off in New York City
An Active-Passive Equilibrium
The Case for Active Management
Chapter 8 Debates on Active Managers' Styles and Methods
Manager Style
Free Cash Flow Is the Measure of Value
Depreciation
Accruals
Research and Development Costs
The CFO Perspective
Chapter 9 The Jump from Company Earnings to Stock Prices
Flaws in Traditional Valuation Measures
Accounting Versus Finance: A Case Study
Chapter 10 Epoch's Investment Philosophy
The Starting Point: Generating Free Cash Flow
Choosing to Reinvest
Capital Investment: Returns and Capital Costs
Once More: Cash-Flow-Based Measures Are Superior
Trends in Capital Allocation
Dividends
Share Repurchases
Debt Buydowns
Capital Allocation: What's the Right Mix?
Part III Technology
Chapter 11 High-Speed Technology
Information Technology: Three Relentless Forces
Chapter 12 Technology in Investing
Information at Work
Order from Chaos: Applying Scientific Frameworks
Computers to the Rescue
A Virtuous Circle
Expansion of Index Funds
Betting against the CAPM
Concurrent Developments
The Spread of Quant
Computing and Data, Neck and Neck
Big Data--beyond Bloomberg
Artificial Intelligence
Chapter 13 The Epoch Core Model
Factors in the Epoch Core Model
Results of the Epoch Core Model
Chapter 14 Racing with the Machine
Investing Is Too Important for Robots Alone
Racing with the Machine
Seeking High Return on Capital
A More Practical Study
Is Persistence Contradictory?
An ROIC strategy
The Value of Judgment
Epilogue
Appendix A: Selected Articles and White Papers of Epoch Investment Partners
Appendix B: Financial Asset Valuation
Appendix C: Feathered Feast: A Case
Acknowledgments
About the Auhtors
Index
Not Dead Yet: How the Right Culture, Philosophy, and Technology Enable Active Investment Managers to Add Value
Part I Culture
Chapter 1 Culture at the Core
The Original Organizational Culture: Command-and-Control
An Alternative Culture for Knowledge Businesses
The Partnership Culture Model
Justice and Fairness
Chapter 2 Culture in Investment Management
Values
Integrity
Trust
Culture and Clients
Firm Culture under Stress
Culture in Recruiting
Acquisitions
Evolution of Culture
Part II Philosophy and Methodology
Chapter 3 The Nature of Equity Returns
The Real Economy versus the Financial Economy
Components of Stock Returns
Price-Earnings Ratios
The Historical Makeup of Stock Returns
Chapter 4 The Great Investment Debate: Active or Passive Management?
The Debate Is Timeless
An Elegant Theory: The Capital Asset Pricing Model
Further Elegance: The Efficient Market Hypothesis
Reality intrudes
The Problem with MPT
Chapter 5 A More Human Description of Investors and Markets:
Behavioral Finance
Loss Aversion
Mental Accounting
Minimizing Regret
Overconfidence
Extrapolation and Reversal
Investor Behavior in Action
MPT Still Lives
Chapter 6 Active Versus Passive Management:
The Empirical Case
Market Regimes
Correlation and Dispersion
Company Quality
The Weight of Cash
Luck Versus Skill
Investors Voting with Their Dollars
Chapter 7 The Case for Active Management
April 2015: Investment Giants Square Off in New York City
An Active-Passive Equilibrium
The Case for Active Management
Chapter 8 Debates on Active Managers' Styles and Methods
Manager Style
Free Cash Flow Is the Measure of Value
Depreciation
Accruals
Research and Development Costs
The CFO Perspective
Chapter 9 The Jump from Company Earnings to Stock Prices
Flaws in Traditional Valuation Measures
Accounting Versus Finance: A Case Study
Chapter 10 Epoch's Investment Philosophy
The Starting Point: Generating Free Cash Flow
Choosing to Reinvest
Capital Investment: Returns and Capital Costs
Once More: Cash-Flow-Based Measures Are Superior
Trends in Capital Allocation
Dividends
Share Repurchases
Debt Buydowns
Capital Allocation: What's the Right Mix?
Part III Technology
Chapter 11 High-Speed Technology
Information Technology: Three Relentless Forces
Chapter 12 Technology in Investing
Information at Work
Order from Chaos: Applying Scientific Frameworks
Computers to the Rescue
A Virtuous Circle
Expansion of Index Funds
Betting against the CAPM
Concurrent Developments
The Spread of Quant
Computing and Data, Neck and Neck
Big Data--beyond Bloomberg
Artificial Intelligence
Chapter 13 The Epoch Core Model
Factors in the Epoch Core Model
Results of the Epoch Core Model
Chapter 14 Racing with the Machine
Investing Is Too Important for Robots Alone
Racing with the Machine
Seeking High Return on Capital
A More Practical Study
Is Persistence Contradictory?
An ROIC strategy
The Value of Judgment
Epilogue
Appendix A: Selected Articles and White Papers of Epoch Investment Partners
Appendix B: Financial Asset Valuation
Appendix C: Feathered Feast: A Case
Acknowledgments
About the Auhtors
Index
