March 23, 2010
The following is in response to Dave Loeperís article, No Shell Game? Then What Is It?, which appeared last week.† That article was in response to Roger Schreinerís article, Itís No Shell Game, which appeared on March 2, and is part of an ongoing exchange between Mr. Loeper and Mr. Schreiner. The exchange began with Mr. Schreinerís February 16 article, The $100,000 Challenge to Passive Managers, and was followed on February 23 by Mr. Loeperís article, The $2 Million Charity Challenge to Active Investors.
I read with amusement Dave Loeperís response to Mr. Schriener. Mr. Loeper has written many interesting things over the years, and he may be doing a wonderful job for his clients, but he is being rather tendentious in his argument with Mr. Schreiner, and making some very puzzling assertions.
First, I heartily endorse his points about managing risk to client goals. But, being familiar with Mr. Schreiner as well, I have to ask: Who is he arguing with? Mr. Schreinerís strategies may well underperform in future years, but certainly he has made no statement that implies he feels that building a portfolio of strategies designed to meet client goals is not a good idea. Where in the realm of active management can it be said that it is not possible to manage in accordance with client goals?
He is also being tendentious in characterizing Mr. Schreinerís design of the contest. Mr. Loeper contends that his riskiest portfolio (the Growth portfolio) is not what he would recommend to his clients, and thus his use of it in his challenge would not be the proper choice for comparison. However, Mr. Schreiner has said a challenger like Mr. Loeper can choose the assets that Schreiner invests in. It would be quite possible for Mr. Loeper to propose his conservative portfolio for Mr. Schreiner to compete against, with a stiff requirement that Mr. Schreiner have both higher returns and lower risk. I say game on.
As for his complaint that the deck is stacked in a way that Mr. Schreiner can game, that is also tendentious. Nothing in Mr. Schreinerís approach suggests he would engage in the types of rigging that Mr. Loeper suggests. I also feel the complaint is irrelevant to the goals of the contest. Even if such gamesmanship were used, it is not true that passive management could not win. Nor would it serve Mr. Schreinerís purpose, since the winning of the bet would be far outweighed by negative publicity, and such easily identified tactics would not demonstrate what he is trying to prove. In fact, they would make Mr. Loeperís point instead.
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