Sometimes a quote just hits you, especially when it has widely applicability to what we typically discuss here on Abnormal Returns. The quote below is from Roger Ehrenberg (@infoarbitrage) of IA Ventures. He was on a recent edition of the 20 Minute VC with Harry Stebbings (@HarryStebbings). They were discussing the different kinds of models VCs can follow. Ehrenberg stated:
“I think dabbling in any markets business, whether venture, hedge funds or long-only investing…if you’re stuck in that middle then I think it’s very, very difficult to compete. You need to be absolutely the best at whatever it is you’re doing.”
Source: 20 Minute VC (March 1st, 2017)
Ehrenberg’s quote reminded of a line by Matt Levine at Bloomberg View talking about hedge funds. Levine writes:
“If you can invest with the best hedge funds, then go right ahead and happily pay up for the alpha. If you can’t do that, then invest with the least-expensive Vanguard-type funds. But most of all, avoid the “middle ground of mediocre performance and medium-sized fees.” That is the killer.”
In active management, whatever the asset class or strategy, the mediocre middle is a horrible place to be. In short, don’t dabble and don’t settle for high fees and low/no alpha.