Being early means higher velocity
Not only do the best Managers have the ability to generate alpha in the early life of the holding, they compound this skill by frequently refreshing the portfolio with new names, which we call research velocity.
The chart below ranks the 1,214 portfolios by research velocity and shows the portfolio alpha relative to the Peer Group associated with each quintile.
The pattern could hardly be clearer.
The fastest fifth achieve 77 basis points a year more than the average
The slowest fifth achieve 54 basis points a year less than the average
A clean line runs from one end to the other, and the relationship holds up to statistical testing.
On the basis that we should all do more of what we are good at, if there is a skill at generating alpha in the early life of a holding, high velocity makes complete sense.
This evidence challenges the popular belief that encourages low turnover and long-term horizons.
