Best Ideas

45 Pages Posted: 23 Mar 2009 Last revised: 2 Apr 2010

See all articles by Randolph B. Cohen

Randolph B. Cohen

Harvard Business School - Finance Unit

Christopher Polk

London School of Economics

Bernhard Silli

Goldman Sachs Group, Inc.

Date Written: March 15, 2010


We examine the performance of stocks that represent managers' "Best Ideas." We find that the stock that active managers display the most conviction towards ex-ante, outperforms the market, as well as the other stocks in those managers' portfolios, by approximately 1.6 to 2.1 percent per quarter depending on the benchmark employed. The results for managers' other high-conviction investments (e.g. top five stocks) are also strong. The other stocks managers hold do not exhibit significant outperformance. This leads us to two conclusions. First, the U.S. stock market does not appear to be efficiently priced by our risk models, since even the typical active mutual fund manager is able to identify stocks that outperform by economically and statistically large amounts. Second, consistent with the view of Berk and Green (2004), the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolio that are not outperformers. We argue that investors would benefit if managers held more concentrated portfolios.

Keywords: mutual funds, managerial skill, market efficiency

JEL Classification: G11, G23

Suggested Citation

Cohen, Randolph B. and Polk, Christopher and Silli, Bernhard, Best Ideas (March 15, 2010). Available at SSRN: or

Randolph B. Cohen

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6674 (Phone)
617-496-6592 (Fax)

Christopher Polk (Contact Author)

London School of Economics ( email )

United Kingdom


Bernhard Silli

Goldman Sachs Group, Inc. ( email )

85 Broad Street
New York, NY 10004
United States

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