The Superstar Syndrome

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Do you believe in superstars?

Michael Jordan in 1997. Photo: Steve Lipofsky. Source: Wikimedia. CC-BY-4.0

In basketball, a lot of fans focus on the stars, and with good reason. For the past 35 years, 11 players with multiple championships have accounted for 32 of the of those titles – over 90%. That’s unlikely to be a random happenstance. Whether it’s by providing points or assists or rebounds, star players are able to make an average hoops team excel.

But are superstars good for investors? Years ago mutual fund companies all banked on the rock-star portfolio manager. Stars like Fidelity’s Peter Lynch were all the rage. They wrote books and gave speeches. Everyone wanted to invest with them.

But then a funny thing happened. Companies that put their PR into a shining star found that the star could lose its luster. First, people are fallible. When Peter Lynch retired, his successors never seemed to fill his oversized shoes. Second human capital has a tendency to grow legs. When money managers have a strong record, they develop personal relationships with larger clients, who often follow them if they move to another firm.

So lots of asset management firms have been fighting this trend. They’ve stopped telling clients who their portfolio managers are. Suddenly, the funds are “team-managed.” Only many aren’t, really. They’re just as dependent as they ever were on one principal decision maker. But now the investors can’t tell who the decision maker is. Or follow them if they go somewhere else.

Not to denigrate teams: they’re great. I work with one of the best asset management teams in New England. But sometimes they’re used to hide the players from the fans.

Douglas R. Tengdin, CFA
Charter Trust Company

“The Best Trust Company in New England”

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By |2019-06-19T09:43:39-04:00June 19th, 2019|Global Market Update|Comments Off on The Superstar Syndrome

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