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In contrast, concentrated portfolios frequently have significant tracking errors to an established benchmark, but offer a greater opportunity for excess return. Corporate governance funds and private equity funds fall into this category because they typically have only a few very concentrated positions in their portfolios.
CAIA Level I
Mark J. Anson PhD CFA and CAIA Association
There are a lot of theories on how to have a great life and accomplish what we want for our career, company, cause, or habits. But for something to work for all of us it shouldn’t require a college degree, extreme wealth, or coming from the “right family.” Instead, it needs to be built on what we all have in common—what is at the core of who we are as people—and how we behave and interact. Nothing is more universal than our need to connect and belong; it is what has allowed us to survive as a species.
Mutual funds create the further flaw that their capacity for vast diversification reduces the incentive of wealth owners to use their specialized Hayek ian knowledge of particular companies, industries, and technologies in favor of simply turning over their wealth for management by one or more funds. Scientific portfolio diversification, which seemed a wonderful gain in economic welfare to the fundamentally neoclassical economist Paul Samuelson, was actually a huge step backward for modern capitalism,
Mass Flourishing
Edmund S. Phelps
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