How do we select these superstar managers? Often it is done by categorizing each one in a style box and then assessing his or her skill relative to a single index. When managers commit the sin of "style drift," they are shown the door and the next victim fills the vacated pie slice.

It's no wonder investors can't find consistent managers. You can't find them using these tools.

As it turns out, good managers don't pay much attention to style boxes, style drift or benchmarks. Why would they? Their job is to pursue opportunity wherever they find it. Of course, some managers pay attention to style drift-because they have learned they will be punished if they stray from their mandate. This may be excellent business-building practice, but it is not good investment practice.

Professor Russ Wermers from the University of Maryland looked at the style drift issue and found that most active mutual fund managers pay little attention to it. He also found that manager skill is not limited to one style box. In fact, managers who drifted more actually had better performance. A skilled manager can find good stocks in any style box.

A similar problem exists when it comes to using single index benchmarks for measuring manager skill. If managers don't pay any attention to style boxes and the best managers seem to be associated with high levels of style drift, then why do we think that comparing managers to a single index will tell us very much about how skilled they are?

Professors Martijn Cremers and Antti Petajisto from the Yale School of Management found that the more a manager's holdings departed from a single index benchmark, the more likely the manager was to outperform the index. This is not surprising. Benchmarks are arbitrary collections of securities that do not tell us anything about where opportunity exists.

Punishing managers for style drift is silly for another reason. The logic behind it is that style drift disturbs the asset allocation strategies that we have crafted. But if we acknowledge, as we must, that the inputs we use to create those strategies are never exactly on target, then we must also acknowledge that demanding from managers a slavish adherence to our asset allocation strategies is an exercise in form over substance.

Skill does exist in investment management, just as it exists in every other human endeavor. But it is relatively rare. Identifying it before it is demonstrated is not easy. And it is very hard to distinguish from luck in many cases. But it can be done.

We use returns-based style analysis to create custom benchmarks for each manager we evaluate. It was developed independently by both Bill Sharpe and Gary Miller, the founder and CIO of our firm. There are other tools as well. Style boxes and single-index benchmarks are not among them.

How you combine managers in a portfolio is at least as important as finding good managers in the first place. The legendary football coach Knute Rockne said: "The secret is to work less as individuals and more as a team. As a coach, I play not my 11 best, but my best 11." This is how we should approach building portfolios.