In their 2019 article, “Superstar Investors,” 1 1 Close Brooks, Tsuji and Villalon, (2019), “Superstar Investors,” The Journal of Investing, Vol. 28, No. 1. Brooks, Tsuji and Villalon examine the track records of four famous investors from a factor perspective. They find that for each of the “superstar” investors, success is partly attributable to long-term exposure to factors that have historically produced positive returns.
In this short article we apply a similar analysis to two renowned U.K. fund managers: Neil Woodford and Terry Smith. Our findings confirm that these managers’ investment returns are consistent with their stated philosophies. As in the original paper by Brooks et al., we find that a large part of Woodford’s and Smith’s long-term success is attributable to patient exposure to well-rewarded factor premia (i.e., “fishing in the right pond”).
We stress that after-the-fact studies do not detract from real performance. The managers studied in Brooks et al., and additionally Woodford and Smith from this study, “figured it out” first, stuck to their philosophies, and rightly deserve their reputations. We have the clear benefit of hindsight. But our analysis reinforces the point made by Brooks et al., that “investors may be able to become more superstar-like by identifying edges such as the ones we analyze here, and having the patience to stick with them over the long term.”