I am a firm believer in stock picking. I think stock picking with the right process and the right temperament works. Moreover, I believe that portfolio managers do poorly not because they lack stock-picking abilities, but rather because institutional factors force them to over-diversify.

My views conflict with those of other academics who believe that markets are efficient—namely, that stock prices reflect all available information correctly and that value and price are always the same. Naturally, if this is the case, stock picking does not work. But are markets efficient? Some finance academics—and virtually all psychology academics—disagree.

A key requirement for market efficiency is that investors are rational. That is, they are dispassionate calculating machines who gather all information, analyze it, and make the correct decision. But psychologists such as Nobel Prize winner Daniel Kahneman beg to differ. They argue that theories assuming humans are rational should be treated with skepticism. Humans are more anxious, irrational, and unpredictable than market efficiency advocates assume.

Kahneman demonstrated that humans are not symmetric in their decision-making. They tend to become risk-averse when they win and risk-seeking when they lose. Others have shown that humans naively extrapolate past performance, are over-optimistic about their abilities, and tend to herd.

Moreover, market efficiency assumes that higher risk leads to higher returns. However, research by finance academics has shown that over the past 50 years, lower-risk stocks have outperformed higher-risk stocks. Market efficiency struggles to reconcile this, yet many academics continue to defend it.

It is hard not to quote Charlie Munger here. Following a Q&A session after the 2017 Daily Journal annual meeting, he said:

“Warren and I have had some effect on investing and thinking, but they are still teaching the Efficient Market Theory at business schools. The old ideas die hard. [Business professors] think that market efficiency is inevitable like physics. Now what kind of nut would want to make stock markets like physics? It ain’t like physics.”

Additional evidence against market efficiency has emerged in recent years, supporting the view that stock picking may work. Academic studies using aggregated data show that funds investing in concentrated portfolios and/or deviating significantly from benchmarks tend to outperform—if not every year, then on average in the long run. These studies also show that prices do not always reflect the most recent accounting statements, suggesting that investors can earn risk-adjusted returns through fundamental analysis and by taking advantage of market inefficiencies.

While earlier studies suggested that stock picking might work indirectly, there had been limited direct academic evidence. That changed at the end of 2024, when two French researchers from ESSEC Business School published a paper demonstrating that mutual fund managers collectively possess stock-picking abilities that outperform passive benchmarks and consensus-based analyst strategies.

Furthermore, they found that investors can learn from and profit by analyzing professional portfolio managers’ historical holdings using machine learning models. If portfolio managers’ performance were driven purely by luck, such strategies would not consistently outperform the market.

This direct academic evidence supports data compiled by Scott Reardon of Dakota Value Funds, showing that more than 50 high-profile value investors have outperformed their benchmarks and/or markets before and after fees over their lifetimes—or during their active management careers. These include John Maynard Keynes (over 24 years), Prem Watsa (over 30 years), Walter Schloss (over 49 years), Peter Cundill (over 35 years), Seth Klarman (over 25 years), Howard Marks (over 22 years), and Charlie Munger and Warren Buffett (over 60 years).

The key characteristics shared by these investors are patience, discipline, and a long-term perspective. Their success cannot simply be attributed to luck, as some academics argue while dismissing stock-by-stock analysis in favor of broad diversification. Instead, it is the result of bottom-up analysis and careful due diligence.

I would like to welcome you all to this year’s Conference. Thanks to your support over the past twenty-one years, we have built a successful value investing program offering student apprenticeships through the Ivey Value Fund, as well as annual conferences, stock-picking competitions, and value investing seminars.

I proudly welcome our panel of professional value investors—Mr. Shaun Heelan, Mr. Robert Vinall, Mr. Richard Oldfield, Mr. Daniel Gladiš, Mr. Andrew Hollingworth, and Mr. Frank Fischer—who are a living testament to the principles described above. They will share how they apply these ideas in practice within their own portfolios in a global setting.

I am also delighted to welcome our keynote speaker, Mr. Thomas Gayner, CEO of Markel Group, who will offer a perspective that differs from what we are typically exposed to in our everyday norms.

Thank you all for joining us. I hope you have an enjoyable and enriching experience at the Conference.

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