Critically discuss the article Essay Example | Topics and Well Written Essays - 250 words

Critically discuss the article - Essay Example Just like in the investment business, the author argues that using past performance of a company’s stock is dangerous. He points out the likelihood of the stock underperforming in the future (Sullivan 2012, p. 1). According to Sullivan (2012, p. 2), investors ask the wrong question by raising an argument of the best funds between active and index funds. To the author, searching for patterns does not result to good investment policy. He proposes that the best way of picking good managers is by mixing art and science. The ability of mutual and hedge fund managers to excellently perform when the indexes are at the peak and then declining as more money comes into the funds makes the practice an art. The science of choosing managers involves a four element criteria of investment process, organizational structure, past returns and due diligence. He points out that performance track record is not the only indicator of good performance by a manager. To him, a good manager ought to have an investment plan or an institutional structure that is better than what people can see. The manager should not only use market timing, but rather understand the market properly to know when to enter and when top exit (Sullivan 2012, p. 3). The author, in trying to advice investors on the best methods to use in hiring managers who can perform has incorporated a number of factors. To him, those who use past performance make a big mistake. A number of factors can lead to managers performing well, which should be verified. However, when hiring, there is no indication that the manager is likely going to maintain the performance record or not. The author was right that a number of factors are involved in evaluating performance by a manager. The fact that the past does not always reflect the future outcome is true. However, past performance cannot be rubbished altogether. The very