@article {Wander37, author = {Brett H. Wander}, title = {The Three Critical Ingredients to Adding Value}, volume = {5}, number = {4}, pages = {37--42}, year = {2003}, doi = {10.3905/jwm.2003.320462}, publisher = {Institutional Investor Journals Umbrella}, abstract = {The article starts with the observation that the relationship between a manager{\textquoteright}s level of skill and the actual value-added to a portfolio can be quite nebulous. Thus, while the ability to make good predictions should result in value-added returns, actual portfolio results are often only minimally correlated to the manager{\textquoteright}s skill level. In this article, we explain why this relationship can break down and provide a framework for quantifying the expected value-added of a constrained portfolio. The article focuses on the three distinct factors that contribute to investment performance-the manager{\textquoteright}s forecasting skill: his ability to predict excess returns; the manager{\textquoteright}s range of opportunities to apply his skill across securities and over time; and the flexibility provided to the manager to express his forecasting skill in a portfolio, which is constrained to some degree.}, issn = {1534-7524}, URL = {https://jwm.pm-research.com/content/5/4/37}, eprint = {https://jwm.pm-research.com/content/5/4/37.full.pdf}, journal = {The Journal of Wealth Management} }