Comments on: Performance Chasing by Professional Investors

By: Successful Investing: 10 Tips for Successful Investing | Financial Highway

Successful Investing: 10 Tips for Successful Investing | Financial Highway — Thu, 23 Jul 2009 09:05:16 +0000

[...] advice is to invest in things you know. If you do not understand the investment stay away from it. Performance chasing is always a dangerous strategy since most professionals can not beat the chances are you [...]

By: Dave Ramsey Post Rebuttal and LinkStuff for June 29

Dave Ramsey Post Rebuttal and LinkStuff for June 29 — Fri, 26 Jun 2009 09:03:24 +0000

[...] Capitalist says that professional investors follow the herd just like us [...]

By: Cam Birch

Cam Birch — Thu, 18 Jun 2009 00:14:43 +0000

After reading that article I can soundly say that the “Yale” model is very interesting. I know several people who use the same model, yet they did not decide to copy Yale (not large investors). It is a very good way to get rich if you have the time to wait and are good at selecting private firms to build up. Liquidity is only a problem if you invest your day to day money in such things.

Looking at the failures of these huge funds is interesting because it is quite obvious that the fund managers forgot to keep a buffer (80% invested in one asset class, hillarious). I have always thought a fund manager should be heavily invested in their fund, this makes sure that when they loose money they cry. It stops them from taking stupid risks (I hope) and certainly would make me far more comfortable with investing.

By: Judy

Judy — Wed, 17 Jun 2009 22:00:17 +0000

props for the Warren Buffett quote. Now I am going to have to read Unconventional Success

By: Silicon Prairie

Silicon Prairie — Wed, 17 Jun 2009 18:15:46 +0000

It’s interesting to see that they hired people who had seen how it worked instead of just investing in the same asset classes… some of them must have known the limits but I guess they weren’t paid to do something completely different.

By: Basil2

Basil2 — Wed, 17 Jun 2009 18:10:48 +0000

Small cap stocks have a large (liquidity) spread which makes them costly to trade compared to large caps. Research on small caps outpeforming market usually doesn’t take this cost into account (it may very well be that this cost eats all of the premium). In addition they are more risky by their very nature (i.e. being small cap these companies are much more vunarable to overall economy downs compared to large caps).

By: Canadian Capitalist

Canadian Capitalist — Wed, 17 Jun 2009 13:52:46 +0000

@Phil: There is a further problem with professional money managers. Their livelihood depends on how they perform versus the benchmark, not over the long term, but over a period of less than a year. Retail investors may have an edge in this regard — we aren’t answerable to anyone (except maybe family), so under performing the benchmarks over a few years may not be a big deal (assuming the retail investor is skilled).

Still, it is amazing how supposedly professional investors were chasing these illiquid investments, disregarding the risks. And what do they do? They imply the “Yale Model” is broken!

By: Four Pillars

Four Pillars — Wed, 17 Jun 2009 12:57:54 +0000

Good post – those guys are all they same. They get to manage large sums of money because they’ve convinced someone they are “experts”.

They might as well be doing long-term weather forecasts.

By: Phil S

Phil S — Wed, 17 Jun 2009 12:15:59 +0000

I recall some time ago on BNN, an institutional investment manager (it was too long ago for me to remember who it was) who managed a small cap stock portfolio mentioned that small and micro-caps is the only area where a small retail investor may have the advantage. He went on to explain that many small cap stocks that he likes don’t have enough liquidity to allow him to purchase them, but a small retail investor may place orders for, say, $5k and buy enough of those stocks to significantly affect their portfolio. But whatever the performance of $5K of stocks in a mutual fund worth $200 million isn’t even worth a rounding error.

So the corollary is that most funds which invest in the stock market are limited to purchasing large cap companies with high liquidity, unless they are able to negotiate a private placement transaction. On the NYSE, it may not be so big of a problem as there are many large caps to choose from, but on the TSX, the choices are limited.

By: Performance Chasing by Professional Investors | BuyWithoutYourBank.com

Performance Chasing by Professional Investors | BuyWithoutYourBank.com — Wed, 17 Jun 2009 05:20:20 +0000

[...] posted here: Performance Chasing by Professional Investors Share with [...]