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The Journal of Wealth Management

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Primary Article

The Three Critical Ingredients to Adding Value

Forecasting Skill, Opportunity, and Flexibility

Brett H. Wander
The Journal of Wealth Management Spring 2003, 5 (4) 37-42; DOI: https://doi.org/10.3905/jwm.2003.320462
Brett H. Wander
At the time of this writing, chief investment strategist at Analytic Investors.
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  • For correspondence: bwander@pacbell.net
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Abstract

The article starts with the observation that the relationship between a manager's level of skill and the actual value-added to a portfolio can be quite nebulous. Thus, while the ability to make good predictions should result in value-added returns, actual portfolio results are often only minimally correlated to the manager's skill level. In this article, we explain why this relationship can break down and provide a framework for quantifying the expected value-added of a constrained portfolio. The article focuses on the three distinct factors that contribute to investment performance-the manager's forecasting skill: his ability to predict excess returns; the manager's range of opportunities to apply his skill across securities and over time; and the flexibility provided to the manager to express his forecasting skill in a portfolio, which is constrained to some degree.

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The Journal of Wealth Management
Vol. 5, Issue 4
Spring 2003
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The Three Critical Ingredients to Adding Value
Brett H. Wander
The Journal of Wealth Management Jan 2003, 5 (4) 37-42; DOI: 10.3905/jwm.2003.320462

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The Three Critical Ingredients to Adding Value
Brett H. Wander
The Journal of Wealth Management Jan 2003, 5 (4) 37-42; DOI: 10.3905/jwm.2003.320462
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