Does “Good Portfolio Management” Exist?

Using closed-end investment trusts as subject-matter, this paper explores this question: Are some portfolio managers “really” better than others? i.e., are there differences in performance among managers other than those differences due to chance? It also throws some light on whether investors, in the aggregate, act rationally upon the knowledge of performance that is reasonably available to them in the pricing of securities.

The results of the study suggest that there is some consistency over time in a closed-end trust's relative success in portfolio management; success in any year is apparently not just a random occurrence, and hence some degree of “good” portfolio management of closed-end trusts seems to exist. (However, the lack of dependence from year to year calls this conclusion into question.) As is therefore rational, the price of the stock, as measured by the discount or premium at which it sells, is loosely related to the closed-end stock's success. The discount (premium) is therefore a better-than-chance prediction of the trust's success in the following year. Further research is called for to check the findings given here and to unravel some of the perplexities.