Question:

You are an active fund manager. You were recently promoted to the role of CIO. You are trying to revise the core investment philosophy of your firm. While reading some of the literature that you regularly send to your clients you find the following two statements. Provide detailed comments on each of the investment beliefs given below. State whether you support the belief or NOT, providing substantiation with academic citations and professional examples.

Investment Belief 1: Investment markets are not efficient, in that price does not always equal value and thus assets are often either overvalued or undervalued. There are less efficient markets in which skill and hard work can lead to a knowledge advantage providing superior investment returns.

Investment Belief 2: Actively managed, concentrated, high-conviction portfolios are likely to outperform larger index-like portfolios.