Winning at active management the essential roles of culture, philosophy, and technology

Further praise for Winning at Active Management “The chances of success in fund management, as in professional sports coaching, are inversely proportional to time The longer you are in the game, the greater your chance of having a poor run over a measurable window (say, three years), and involuntarily exiting the field So the thoughts of a manager with 50 years’ experience are worth reading This book, unlike many written by active managers, does not claim to have found El Dorado and a path to untold riches; indeed, it acknowledges that passive investment may be appropriate for some applications The reason Bill has succeeded for so long comes across well in his and his co-authors’ approach to culture, and in their dismissal of the Price-Earnings Ratio – a figure that whilst discredited, and never used in private markets, remains a mainstay of most active managers’ processes Economies and markets not stand still, and yet many active and quant managers believe that what worked before will work again without the need to change and evolve their processes It is in this area, more than any other, that 50 years of experience is invaluable.” Robert Waugh Chief Investment Officer The Royal Bank of Scotland Group “One of the most difficult aspects of consulting to institutional investors is finding active investment managers who will produce consistent results over a long period While an investment process that is both sound and repeatable across different market environments is critical, it is insufficient unless implemented in a thoughtful way by an investment team that possesses the skills and values, and is offered the right incentives, to make optimal investment decisions To my mind, a firm’s leadership must inculcate and manage this sort of culture within the entire team in order to remain successful over a long period, and the first part of this book highlights that cultural challenge Technology has become a game changer in the investment industry, and the organizations that apply it most effectively will be the long term winners Given the incredible amount of information that is now available, winnowing the critical insights to a manageable amount and sharing them among the investment team has become essential to an investor’s success In addition, using technology to better understand the factors behind market behavior can help an investment firm to evaluate its own performance Again, the book speaks effectively of the need to make better use of technology within all parts of the investment industry.” David Service Director, Investment Consulting Willis Towers Watson (Retired) “Bill Priest, a leading practitioner of free cash flow-based investing, explains why that philosophy has been so successful And much more: he and his co-authors tackle the most difficult issue in the investment management business – culture – and demonstrate how to maintain it in challenging periods The book also addresses the industry’s latest challenge, the proliferation of quantitative algorithms in every corner of the investment world, and describes how the value of judgment has increased as machines have come to exploit the short-term relationships that can be tested Recommended reading for this generation of investors, and the next one.” Michael Goldstein Managing Partner Empirical Research Partners Winning at Active Management Winning at Active Management The Essential Roles of Culture, Philosophy, and Technology William W Priest Steven D Bleiberg Michael A Welhoelter with John Keefe Cover image: © Maxiphoto/Getty Images, Inc Cover design: Wiley Copyright © 2016 by William W Priest All rights reserved Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United 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contained herein may not be suitable for your situation You should consult with a professional where appropriate Neither the publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages For general information on our other products and services or for technical support, please contact our Customer Care Department within the United States at (800) 762-2974, outside the United States at (317) 572-3993 or fax (317) 572-4002 Wiley publishes in a variety of print and electronic formats and by print-on-demand Some material included with standard print versions of this book may not be included in e-books or in print-on-demand If this book refers to media such as a CD or DVD that is not included in the version you purchased, you may download this material at http://booksupport.wiley com For more information about Wiley products, visit www.wiley.com Library of Congress Cataloging-in-Publication Data: ISBN 9781119051824 (Hardcover) ISBN 9781119051770 (ePDF) ISBN 9781119051909 (ePub) Printed in the United States of America 10  9  8  7  6  5  4  3  2  To Jack L Treynor – the Albert Einstein of Finance, a man of great principle, a co-author, and a friend, from whom I learned more finance and economics than any other person And to my family – wife Katherine, Jeff, Karen, Amanda, Jack, Jacob, Hayley, Spencer, Joan, and Steve, who provide support, questions, and the occasional “what in the world were you thinking!” – William W Priest To Terri, Ben, Katie, and Ellie, and to my father, Lawrence Bleiberg, in whose footsteps I have followed – Steven D Bleiberg To my wife, Leslie, and my children, Christopher, Megan, and Lindsay – Michael A Welhoelter Contents Preface xi Active Management is Not Dead Yet Part I Culture Chapter Chapter Culture at the Core  The Original Organizational Culture: Commandand-Control An Alternative Culture for Knowledge Businesses The Partnership Culture Model Justice and Fairness 10 17 Culture in Investment Management  21 Values Integrity Trust Culture and Clients Firm Culture under Stress Culture in Recruiting Acquisitions Evolution of Culture 22 26 28 32 34 35 38 41 vii 292 Appendix C Saunders: Wouldn’t I be better off if I focused on financial data that were untainted by the subjectivity of an accountant’s expectations? Ridges: The standard of verifiability is a necessary attribute of accounting information, allowing persons who have ­neither access to the underlying records nor the competence to audit them to rely on those records Saunders: If I wanted to base my analysis on numbers relatively free from the influence of an accountant’s expectations regarding the future, what numbers might I use? Ridges: The fundamental concern of investors and creditors with an enterprise’s cash flows might suggest that financial statements that report cash receipts and cash disbursements of an enterprise during a period would provide the most useful information for investor and creditor analyses That information is readily available, can be reported on a timely basis at minimum cost, and is essentially factual because it involves a minimum of judgment and assumption Saunders: Would you mind telling me again why outside users like myself are supposed to pay so much attention to earnings? Ridges: The relation between cash flows to an enterprise and the market price of its securities, especially that of common stock, is complex, and there are significant gaps in the knowledge of how the market determines the prices of ­individual securities Moreover, the prices of individual securities are affected by numerous other factors that affect market prices in general Nevertheless, the expected cash inflows to the enterprise are the ultimate source of value for its securities, and major changes in expectations about these cash inflows immediately affect market prices significantly Intrinsic value is the value that the security ought to have and will have when other investors have the same insight and knowledge as the analyst Because the intrinsic value Appendix C 293 of a stock usually cannot be measured directly, given the uncertainty of its future cash dividends and market prices, investors and security analysts commonly attempt to estimate it indirectly or to estimate some surrogate for intrinsic value, such as what a stock’s price ought to be in a price/earnings ratio The procedure involves estimating average earnings for a future span of years—the indicated future average earning power—and multiplying that prediction by an appropriate “capitalization” to obtain intrinsic value For example, estimated average earnings per share may be multiplied by a price/earnings ratio to obtain a price that reflects intrinsic value If that price is higher than the market price, the analysis advises the investor to buy; if it is less than the market price, the analysis advises the investor to sell Saunders: So that’s why you accountants place heavy emphasis on reported earnings Ridges: Decisions about what information should be included in financial statements and what information should be excluded or summarized should depend primarily on what is relevant to investors’ and creditors’ decisions Sensing that he had gone about as far as he could go with Ridges, Saunders thanked him and brought the interview to a close Although he found Ridges’s answers enigmatic and mildly ­confusing, he had the feeling that they held the key to his ­problems with Feathered Feast In a few days, Saunders would be meeting with the trustees of the Amalgamated Iceman’s Pension Fund to explain its investment performance since 1991 They had selected him to manage the portfolio largely because of his reputation for emphasizing tangible earning assets, rather than “stories.” He was sure the trustees would ask him to defend the Feathered Feast decision and to explain the subsequent investment disappointment Should he show them Tables and 2? Or should he show them Table 3? Saunders was uncertain exactly what to say Acknowledgements W hen the New York Yankees beat the Kansas City Athletics to clinch the 1958 American League pennant, Yankees manager Casey Stengel famously remarked that “I realize I couldn’t have done it without the players.” This book, too, was a long and considerable effort, and would not have been possible without the important contributions of many people other than the authors For their views on the investment management industry, we thank James MacLachlan, Laurence Siegel, Ted Aronson, and Barton Waring Behind the scenes at Epoch Investment Partners, Lilian Quah brought our attention to crucial academic research and wrote up the Epoch Core Model, David Pratter crunched invaluable numbers, while Huma Bari deftly juggled schedules, paperwork, and personalities At our publisher, John Wiley & Sons, Christina Verigan and Susan Cooper brought the manuscript together, while Vincent Nordhaus and Bill Falloon kept us on track toward production And most important, we give a special shout-out to the employees of Epoch Investment Partners who collectively define our culture, carry out our investment philosophy, and are the heart of innovating and evolving the firm to the next level Thanks to all of you 295 About the Authors William W Priest is Chief Executive Officer and Co-Chief Investment Officer of Epoch Investment Partners Prior to co-founding Epoch in 2004 with David Pearl, Tim Taussig, and Phil Clark, Bill was a Co-Managing Partner and portfolio manager at Steinberg Priest & Sloane Capital Management, LLC for three years Before joining Steinberg Priest, he was Chairman and Chief Executive Officer of Credit Suisse Asset Management-Americas and CEO and portfolio manager of its predecessor firm BEA Associates, which he co-founded in 1972 During his 30-year tenure at BEA and CSAM, he developed the firm into a well-recognized investment manager with over $100 billion under management Bill is the author of several published articles and papers on investing and finance, as well as two books: The Financial Reality of Pension Funding Under ERISA and more recently, Free Cash Flow and Shareholder Yield: New ­Priorities for the Global Investor, published by John Wiley & Sons Bill holds the Chartered Financial Analyst designation, is a former CPA, and a graduate of Duke University and the ­University of Pennsylvania Wharton Graduate School of ­Business He is a member of the Council on Foreign Relations and the Barron’s Roundtable Steven D Bleiberg is a Managing Director of Epoch Investment Partners Steven is responsible for the design and development of investment strategies at Epoch, and also serves as a portfolio manager for the firm’s Capital Reinvestment strategy Prior to joining Epoch, Steven served as a portfolio manager 297 298 About the Authors for $7.5  billion in asset allocation funds at Legg Mason Earlier, he was the head of investment strategy at Citigroup Asset Management, and a portfolio manager at Credit Suisse Asset Management and its predecessor firm, BEA Associates Steven is a graduate of Harvard College, where he served as an editor of the Harvard Lampoon, and the Sloan School of Management at MIT He has contributed articles to the Financial Analysts Journal, The Journal of Portfolio Management, and the New York Times, and wrote a chapter on behavioral finance in Multi-Manager Funds: Long-Only Strategies for Managers and Investors (2006) Michael A Welhoelter is Epoch Investment Partners’ Chief Risk Officer He heads the firm’s Quantitative Research and Risk Management team, and is responsible for integrating risk management into the investment process Prior to joining Epoch in 2005, he was a Director and portfolio manager in the Quantitative Strategies Group at Columbia Management Group, Inc Previously, Mike was a portfolio manager in the Structured Equity group at Credit Suisse Asset Management Group and a portfolio manager and quantitative research analyst at Chancellor/LGT Asset Management Mike holds a BA degree in Computer and Information Science from Colgate University He is a member of the New York Society of Security Analysts, the Society of Quantitative Analysts, and holds the Chartered Financial Analyst designation John Keefe is a New York-based freelance writer, having covered investment and retirement topics for such publications as Institutional Investor, Financial Times, and PlanSponsor His training is in finance, and he spent ten years as an analyst on the sell side of Wall Street following the financial services industry John is a former CPA, and a graduate of Villanova University and the University of Pennsylvania Wharton Graduate School of Business Index A Accountability, 27–28 Accounting vs finance, 128–130 Accruals, 114–117, 194–196 and earnings quality, 194–196 Acquisitions, 38–40 Active management, 101–108 See also Active vs passive management active-passive equilibrium, 103–105 case for, 105–108 conference on professional investment (New York), 101–103 “Active Management in Mostly Efficient Markets” ( Jones & Wermers), 107–108 Active managers’ styles and methods, 109–124 accounting measures, shortcomings of, 119–120 CFO perspective, 120–123 depreciation, 113–114 free cash flow as measure of value, 112–113 manager style, 110–111 research and development costs, 118–120 Active vs passive management, 63–72, 85–99 See also Active management Capital Asset Pricing Model (CAPM), 66–68, 69–71 cash, weight of, 90–91 company quality, 89–90 correlation and dispersion, 87–89 debate about, 65–66 Efficient Market Hypothesis (EMH), 68–69 investors voting with dollars, 96 luck vs skill, 91–96 market regimes, 87 MPT, problem with, 71 reality, 69–71 Adobe Systems, 184 The Age of Spiritual Machines (Kurzweil), 164 “Are Buybacks an Oasis or a Mirage?” (Research Affiliates), 149–150 Arnott, Robert, 144 Artificial intelligence (AI), 187–188 Asness, Clifford, 144, 205 Atlanta Federal Reserve Bank, 184 299 300 B Balance sheet bloat, 195 Barclays Global Investors, 178 Behavioral finance, 73–84 extrapolation and reversal, 78 investor behavior in action, 78–80 loss aversion, 74–75 mental accounting, 75–76 Modern Portfolio Theory (MPT), 80–82 overconfidence, 77–78 regret, minimizing, 76–77 Bernstein, Leopold, 113 Bernstein, Peter, 174, 180 Beta, 70–71 Big data, 183––187 Black, Fischer, 67, 161, 175 BlackRock Corporation, 177, 178, 184 Bloomberg, 166 Bogle, Jack, 101–103, 108 Bonds, 273–279 duration, 278–279 prices with changing interest rates, 277–278 prices at issuance, 274–276 Boston Market, 131 Bridgewater Associates, 188 Brownian motion, 173 Brynjolfsson, Erik, 162–163, 165, 167, 168–169, 176 C “The Canary in the Coal Mine: Subprime Mortgages, Mortgage-Backed Securities, and the US Housing Bust,” 236–253 CDOs, rise of, 243–245 CDOs and RMBS future of, 252 Index risks that lie beyond the subprime decline, 245–249 RMBS, rise of, 241–243 subprime and Alt-A mortgages, 239–241 subprime residential mortgage industry, future of, 249–252 US housing boom, 236 Capital allocation choosing the right mix, 151–152 trends in, 142–143 Capital Asset Pricing Model (CAPM), 66–68, 69–71, 80–81, 161, 175, 177–179 Cash, weight of, 90–91 Cash-flow-based measures, 139–142 Center for Research in Securities Prices, 181–182 Christensen, Clayton, 40 Christy, George, 116 Cisco Systems, 166 Citibank, 184 Clarke, Deb, 23–24, 105 Command-and-control, 5–8 drawbacks of, 7–8 Company earnings, and jump to stock prices, 125–132 accounting vs finance, 128–130 traditional valuation measures, flaws in, 125–128 Company quality, 89–90 Completed contract method, 112 Constable, Neil, 96 Correlation and dispersion, 87–89 Cost of equity capital, 137 Cremers, Martijn, 22 Culture at the core, 3–19 command-and-control, 5–8 justice and fairness, 17–18 Index knowledge businesses, alternative culture for, 8–10 partnership culture model, 10–17 in investment management, 21–46 acquisitions, 38–40 and clients, 32–34 evolution of culture, 41–44 integrity, 26–28 in recruiting, 35–38 trust, 28–32 under stress, 34–35 values, 22–26 D Dechow, Patricia, 195–196, 282 Debt buydowns, 150–151 Depreciation, 113–114, 136 Dichev, Ilia, 121–122 Digitization, massive, 165–166 Dividend discount models, 279–281 Dividends, 143–145 Dobbs, Richard, 205 Dodd, David, 72, 83 E Efficient Frontier, 175 Efficient Market Hypothesis (EMH), 66, 68–69 Electronic spreadsheet, introduction of, 182 Ellis, Charles D., 86, 93 Employee Retirement Income Security Act (ERISA), origins of, xiii–xiv, 93, 179 Epoch Core Model, 191–199 factors in, 192–196 accruals and earnings quality, 194–196 301 forward-looking free cash flow, 193–194 historical free cash flow yield, 192 leverage, 194 results of, 196–199 relative return of, 198 Epoch Investment Partners acquisition by Toronto Dominion Bank, 40 aspiration statement, 219–221 compliance record of, 28 Core Model See Epoch Core Model culture and clients, 34 and evolution of culture, 41–42, 43 and interdependence, 12–13 investment philosophy, 133–155 capital allocation, 142–143, 151–152 cash-flow-based measures, 139–142 debt buydowns, 150–151 dividends, 143–145 free cash flow, generating, 134–135 reinvesting, 135 returns and capital costs, 136–138 share repurchases, 145–150 recruiting at, 36–37, 38 selected articles and white papers of, 223–272 “The Canary in the Coal Mine: Subprime Mortgages, Mortgage-Backed Securities, and the US Housing Bust,” 236–253 “The Financial Crisis: A ‘Whodunit’ Perspective,” 254–264 302 Epoch Investment Partners (continued) “The Power of Zero + The Power of the Word,” 265–272 “Using Portfolio Composition to Estimate Risk,” 223–235 Shareholder Yield strategies, 202, 204 and trust, 32–32 under stress, 34–35 values of, 22–23 views on active management, 111 Equity returns, nature of, 49–62 price-earnings (P/E) ratios, 53–59 real economy vs financial economy, 49–51 stock returns components of, 51–53 historical makeup of, 59–62 Erhard, Werner, 26–27 Evolution of culture, 41–44 Extrapolation and reversal, 78 F F W Cook, annual survey of executive compensation methodology, 120 Facebook, Inc., 12 FactSet, 166 Fairfield, Patricia, 195 Fama, Eugene, 68, 80–81, 83, 175, 178, 205 Farrell, James, 282–283 “The Feathered Feast” (Treynor), 128–130, 285–293 Federal Reserve, 57, 90, 160 Federal Reserve Bank of St Louis, 166 Ferrucci, David, 188 Financial asset valuation, 273–283 bonds, 273–279 duration, 278–279 Index prices with changing interest rates, 277–278 prices at issuance, 274–276 stock valuation through cash flows, 279–283 dividend discount models, 279–281 duration, 281–283 “The Financial Crisis: A ‘Whodunit’ Perspective,” 254–264 the argument, 254 capitalism, 260 Federal Reserve, role of, 262–264 financial history, waning memory of, 259–260 government, role of, 260 investment banking, role of, 254–259 perspective, 254 Fisher, Lawrence, 161 Ford, Martin, 164, 168 Frazzini, Andrea, 205 Free Cash Flow (Christy), 116 Free cash flow applications of, 134 forward-looking, 193–194 historical free cash flow yield, 192 generating, 134–135 as measure of value, 112–113 French, Kenneth, 80–81, 83, 178, 205 G Gambler’s fallacy, 78 Goldman Sachs, 185 Google, 14, 36 Gordon, Myron, 280 Gordon growth model, 280–281 Graham, Benjamin, 65–66, 72, 83 Graham, John, 120–122 Grant, Jim, 101–103 Great person theory, 303 Index Grinold, Richard, 197–198 Gross domestic product (GDP), 49–51 H Hagin, Robert, 178 Harvey, Campbell, 120–122 Hecht, Peter, 216 Higgins, Catherine, 161 High-speed technology, 159–170 information technology, 162–169 human-computer interface, 168–169 massive digitization, 165–166 Moore’s Law, 163–165 recombinant technology, 167–168 Hirshleifer, David, 117, 195 House, David, 164 HSBC, 184 Human-computer interface, 168–169, 201–218 Epoch study, 206–208 investing, importance of, 201–202 judgment, value of, 214–217 persistence in ROIC, 208–210 racing with the machine, 202–204 ROIC strategy, 211–214 seeking high return on capital, 204–206 Huyett, Bill, 205 I IBM Corporation, 2012 study by, Information technology, 162–169 human-computer interface, 168–169 massive digitization, 165–166 Moore’s Law, 163–165 recombinant technology, 167–168 Innovative Market Systems, 182 Integrity, 26–28 “Intelligent Machinery” (Turing), 187 Interest rates, 49–50 International Financial Reporting Standards (IFRS), 118 Internet of Things, 166 Investor behavior in action, 78–80 “Is Skill Dead?” (GMO LLC), 95 J J P Morgan Asset Management, 95 Jahnke, William, 177, 179, 181 James, Bill, 186 January effect, 69 Jensen, Michael, 26–27 Jones, Robert, 107 Judgment, value of, 214–217 Justice and fairness, 17–18 K Kadnar, Matt, 96 Kahneman, Daniel, 82–83 Keynes, John Maynard, 135, 136, 210 Khimich, Natalya, 195–196 Knowledge businesses, alternative culture for, 8–10 Koller, Tim, 205 Krzyzewski, Mike, 25–26 Kurzweil, Ray, 164 L Lehman Brothers Holdings, 31 Leverage, 194 Licklider, J C R., 203 Lintner, John, 67, 161 304 Lo, Andrew, 4, 42, 80 “The Loser’s Game” (Ellis), 86, 93 Loss aversion, 74–75 Lynch, Jones & Ryan, 182–183 M MacLachlan, James, 33–34 Maksy, Mostafa, 113 Manager style, 110–111 Market regimes, 87 Markowitz, Harry, 71, 160–161, 174–175 Mauboussin, Michael, 92–93, 206, 211, 213 McAfee, Andrew, 162–163, 165, 167, 168–169, 176 McLean, R David, 216 McQuown, John, 175 MCSI USA Index, 89 MCSI USA Quality Index, 89 MCSI World Index, 64, 212 annual returns of, 212 Mean variance, 71 Mental accounting, 75–76 Miller, Merton, 150, 175 Modern Portfolio Theory (MPT), 67–68, 69, 71, 73–77, 80–82, 104, 105 anomalies in 69 problem with, 71 Modigliani, Franco, 150 Molodovsky, Nicholas, 131 Moneyball, 186 Moore, Gordon, 163–164 Moore’s Law, 163–165 Morgenson, Gretchen, 27–28 N Net book value, 127 Novy-Marx, Robert, 204–205, 215 Index O Observer effect, 104 Operating profits, factors determining, 209 Osborne, M F M., 173–174, 225 Overconfidence, 77–78 P Partnership culture model, 10–17 interdependence, 11–14 shared interest, 16–17 support, 14–16 Passive management See Active vs passive management Pavilion Global Markets, 58 Pedersen, Lasse, 205 Pension Benefit Guaranty Corporation (PBGC), xiv Percentage of completion, 112 “Performance and Persistence in Institutional Investment Management” (Busse, Goyal, & Wahal), 93–94 Petajisto, Antti, 22 Point72 Asset Management, 188 Pontiff, Jeffrey, 149, 216 Porter, Michael, 209 “The Power of Zero + The Power of the Word,” 265–272 power of the word, 267–272 power of zero, 265–267 Price-to-book ratio, 126, 128 Price-earnings (P/E) ratio, 50, 53–59, 126–128, 141 PricewaterhouseCoopers, study on R&D capitalization practices, 118–119 Professional partnership, tenets of, 11 305 Index Q Quantitative easing, 57, 90 Quantitative management, 181 R Rajgopal, Shiva, 120–122 Real economy vs financial economy, 49–51 Recombinant technology, 167–168 Recruiting, culture in, 35–38 Regret, minimizing, 76–77 Reinvesting, 135 Returns and capital costs, 136–138 Returns on invested capital (ROIC), 136, 138, 140, 142, 205–214 persistence in, 208–210 strategy, 211–214 Rosenbert, Barr, 179–181 Rosenberg, Jonathan, 4–5, 14, 36 Ross, Steven, 70–71 Rubinstein, Jon, 188 S Sabermetrics, 186 Schein, Edgar, 3–4, 40, 41 Schmidt, Eric, 4–5, 14, 36 Scholes, Myron, 175 The Second Machine Age (Brynjolfsson & McAfee), 162–163 Securities Exchange Act of 1934, Rule 10b-18, 148 Share repurchases, 145–150 example, 147–148 Sharpe ratio, 22 Sharpe, William, 22, 67, 161, 175, 223 Shaw, Robert Bruce, 29 Shefrin, Hersh, 73, 77, 79 Shiller, Robert J., 69, 73 Siegel, David, 188 Siegel, Laurence, 179, 181 Sloan, Richard, 116, 195–196, 282 Social Science Research Network, 166 Soliman, Mark, 282 Stock picker’s market, 87 Stock returns components of, 51–53 historical makeup of, 59–62 Stock valuation through cash flows, 279–283 dividend discount models, 279–281 duration, 281–283 Studebaker-Packard Company, xiv T Taylor, Frederick W., Technology high-speed 159–170 information technology, 162–169 in investing, 171–190 artificial intelligence (AI), 187–188 big data, 183––187 CAPM, betting against, 177–179 computers, 174–175 computing and data, 181–183 concurrent developments, 179–181 index funds, expansion of, 177 information at work, 172 quantitative management, spread of, 181 scientific frameworks, applying, 172–174 virtuous circle, 176 306 Tett, Gillian, 12 The Theory of Investment Value (Williams), 279–280 Thomson Reuters, 166 Traditional valuation measures, flaws in, 125–128 Treynor, Jack, 126, 128–130, 161, 285 Trust, 28–32 Turing, Alan, 187 Tversky, Amos, 82–83 U “Using Portfolio Composition to Estimate Risk,” 223–235 V Values, 22–26 W Weighted average cost of capital (WACC), 136, 138, 206–208, 212–214 Index Weitzman, Martin, 167–168 Wells Fargo, 175, 176, 177, 178 Yield-Tilt Fund, 178 Wermers, Russ, 107 Whisenant, Scott, 195 Williams, John Burr, 127, 172, 279–280 Willis Towers Watson, 33–34, 94–95 report on equity investing (2014), 94 Woodgate, Artezima, 149 Woodruff, Paul, 17 Y Yield-Tilt Fund (Wells Fargo), 178 Yohn, Teri Lombardi, 195 Z Zhou, Haigang, 79 Zhu, John Qi, 79 ... generation of investors, and the next one.” Michael Goldstein Managing Partner Empirical Research Partners Winning at Active Management Winning at Active Management The Essential Roles of Culture,. .. of this book offers background on the debate over the merits of active management versus passive alternatives and points out that active investment managers have been challenged by an array of. .. into the functioning of markets As a result of their increasing power and decreasing cost, computers have taken over much of the burden of raw data analysis, and the widespread digitization of