Question

Suppose you are looking for some investment opportunities in the stock market.

2. A portfolio manager recommends you his mutual fund. He claims that the mutual fund he manages obtained a 10%, 6% and 8% return in the past three years, while the market return was only 8%, 4.8%, and 6.4% in the past three years. Based on this information, do you believe this manager is good at picking stocks? If not, what other information do you need?

Answer 1

2. it can be seen looking at the performance of the manager that this manager has outperformed the index to a large extent because he has almost outperformed index in every year of the the past three years because he has obtained a higher rate of return than index.

It can be said that the investor has continuously outperformed the index and it can only be done through better diversification and better active management of the portfolio and I will believe that this manager is good in picking of the stocks because market will be always having a predefined stocks, but active managers are always reshuffling their portfolio in order to adjust to the market trends and I will believe that this manager is good at timing the market and this manager is also good at keeping the stocks and diversifying them in order to earn higher rate of return in the long run.