Premier League lesson: Patience is the key for most investors

The annual circus of the Premier League has rolled into town again. Whether you are a devoted fan or an involuntary bystander, the wall-to-wall coverage of the self-styled best league in the world will make it difficult to ignore.

If you can briefly forget about the football, however, there is one feature of the Premier League this year that highlights an important lesson for investors looking to select a fund manager.
The retirement of Manchester United manager Alex Ferguson and, more particularly, the incredible league record he leaves behind after 27 seasons in charge at Old Trafford is worth considering.

When he first arrived at the club, rivals such as Liverpool, Everton, Leeds and Arsenal had all captured the league title on numerous occasions since United had last triumphed, and there was no reason to expect any particular success when the Aberdeen manager arrived – despite his European success against the odds in his native Scotland.

Indeed, if the previous 18 league campaigns were anything to go by, the faithful of the Stretford End were facing another long period of failure and disappointment.

And his early years at United were dogged by frustration and failure. There were those who thought he was living on borrowed time when his team finally won the FA Cup four years later, in 1990.

But Ferguson’s record defied this outlook. He achieved unprecedented success in a period when Liverpool, Everton, Leeds and Arsenal sacked and hired multiple managers to little effect:

LEAGUE RECORD 1986 to 2013

Man Utd - Managers 1, League Titles 13
Liverpool - Managers 9, League Titles 2
Everton - Managers 8, League Titles 1
Leeds United - Managers 18, League Titles 1
Arsenal - Managers 6,League Titles 5

While Ferguson may have had exceptional managerial skill, it is unlikely that the 41 managers, who, between them, passed through the revolving doors at Anfield, Goodison Park, Elland Road and Highbury during the long years of his remarkable dominance were as unskilled as their performance records suggest.

The more likely explanation is that some or possibly many of them of them possessed the skill to perform better, but few if any of them were given the time.

This is the crucially important lesson for those assessing the similarly volatile world of investing.

Over the shorter term, market “mood” and those lucky enough to be exposed to it may perform, but over the longer term the effects of “mood” fades and the skilful manager, if still around, is more likely to prevail.

Market “mood” has dominated stock-market performance in any given year, while, over any given five years, performance has been dominated by factors rooted in the health of the underlying businesses: dividend yield and dividend growth.

These factors are more likely to be identified by the skilful than the lucky but, crucially, skill needs time to come to the fore. Long-term success – in football or investing – is most likely achieved by a manager with a credible process given the time to apply it.

Shortened time-frame
The author Nassim Taleb summarised it well in his book Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets: "Over a short time increment, one observes the variability of a portfolio, not the returns. When I see an investor monitoring his portfolio with live prices on his cellular telephone or his handheld, I smile and smile."

Paradoxically, investors in general have been rushing in the opposite direction. Reacting to more and more "news" from a rapidly expanding media, they have been shortening their time-frame. Whether hiring and firing managers, or buying and selling assets, the average investor has increasingly eschewed the longer view.
A good proxy illustration of this is the average holding period for stocks. The trend on the NYSE, where the average holding period is now just six months com- pared to more than six years in the late 1970s, is true of stock markets everywhere.

In selecting a fund manager, you should stay clear of such frenzied behaviour. You should devote your time and energy to finding a manager whose approach is credible and understandable. You should then check to ensure that they have demonstrated the courage to apply this approach consistently through the inevitable vagaries of the marketplace. Finally, you should relax and allow time to deliver your likely performance reward.

The advice of renowned Canadian investor Peter Cundhill in the 10th anniversary letter to the fortunate investors in his Cundhill Value Fund in 1984 is worth repeating and repeating: "The most important attribute for success in investing is patience, patience, and more patience; the majority of investors do not possess this characteristic."

He could equally have been referring to football fans, or club chairmen. Enjoy the season.

John Looby is an investment manager at Setanta Asset Management, a global value manager based in Dublin