Einstein, Mourinho & Active Management

Albert Einstein said the eighth wonder of the world was compounding but it seems Jose Mourinho must have taken to reading Einstein’s work during his time off after his Chelsea sacking. The Manchester United manager continues to sarcastically refer to football pundits as ‘Einsteins’ and on Monday night he claimed ‘Liverpool are not the last wonder of the world’.

Now, the man who ran down the pitch to celebrate with fans, goaded Liverpool fans at Anfield after crushing their title hopes, stuck his finger in an opposing manager’s eye and berated a club doctor, has the audacity to call out Chelsea manager Antonio Conte for motivating his fans. The self-proclaimed special one’ should read this quote from Einstein:

“If A is a success in life, then A equals X plus Y plus Z. Work is X; Y is play; and Z is keeping your mouth shut.”

While a different type of leader continues to build momentum at Liverpool the commentary around Manchester City’s Pep Guardiola is a reminder of the type of short termism we also see in financial markets.

After winning his first 10 games for City, Guardiola was asked whether his side could win all four trophies. His response, “what the f##K?’ Now the Spanish maestro is being written off by many and his previous success at Barcelona and Bayern Munich is being put down to the players. Ridiculous. Yes the players are crucial but the manager is the leader, who sets the vision for his players. Would Jose Mourinho have had Barcelona playing the same way?

Still, there is a lesson here for trustee groups when designing investment strategy and deciding on active versus passive management. Even when you hire what you believe is the best active fund manager in their category, there will be periods of underperformance and their philosophy will be inevitably called into question. Therefore, if you decide to hire an active manager you must be comfortable with this fact and be prepared to deal with it in logical unemotional way.

Too often, just as is the case in the football world, managers are afforded very little time, and the panic button is hit.

Therefore, it is important trustee groups consider the extra level of responsibility they take on when employing an active manager, particularly in terms of monitoring performance. If a passive manager fails to replicate the benchmark, then a decision can be made quickly to fire them.

However, periods of underperformance for an active fund require a much more in-depth analysis of what is behind it and most importantly whether is it likely to continue? Not an easy thing considering the difficulty in predicting the future.

I am not advocating against active management, active managers can add value. But if you do employ an active manager, it is crucial to have a clear sell discipline in place to avoid hastily firing them or holding on for too long in the hope that the good times will return. Remember, Sir Alex Ferguson came very close to being fired in the early days at Manchester United, what might have been!

Finally, given how enjoyable it was seeing Chelsea hammer Manchester United yesterday, I’ll leave you with Antonio Conte’s response to Jose’s cries of ‘humiliation’:

“If you want to cut the emotions, we can stay at home and I will change jobs.” One cool Italian.