Finding a great investment manager

It has been said, and backed up by research, that it is impossible to find a manager who would 1) outperform the benchmarks in the long run, possibly not "consistently", 2) Will not take on unwarranted risk and recognize market follies enough to not participate in them.

I would like to suspend this belief in such an impossibility. Let's assume, even if this is not true, that there are such managers and then can be identified.

Under this lofty assumption, how would one go about finding such a manager? What sorts of people would you look for, where, how would you eliminate those that look like they could do (1) but lose everything due to failing on (2)?

Essentially, the dilemma of a little investor, like myself, is that a good manager may be better than me at managing money, but there is almost inevitably an agency problem (conflict of interest) of one sort or another. This complicates search for a "great manager". Plus, some would not take small amounts of money.

I would like to ask, if possible, to not argue whether a manager like this can be found. I wanted this thread to discuss how to find one, not whether it is possible.

My own feeling about the question posed, is that it is very difficult to find a good manager that would satisfy both conditions and would work under an acceptable reward structure (and would take a relatively small amount to manage).

It may be easier to identify certain red flags to be avoided, such as

1) investments in anything exotic taking up a large part of a portfolio, 2) excessive self promotion, 3) too much secrecy, 4) abuse of leverage. i
Reply to
Igor Chudov
Loading thread data ...

Sure it is possible and indeed those managers do exist. You need to understand how the manager invests. For example, is this person a value driver manager? How does he/she decide what stocks or MF's to invest in. I presonally would not just give my money to someone to invest. I would allow someone to buy and sell from my acct., so I have control at all times. And of course you need to look at the track record of the manager.

Generally fee only managers would take about 1% of your portfolio. Anything too high or too low would be a red flag.

Reply to
PeterL

Easy: Wait 20 years, see which manager has the best performance over that time, and then turn back the clock and invest with that manager.

What's that you say? There's no way to turn back the clock? Easy: Just suspend your belief in such an impossibility.

Reply to
Andrew Koenig

If it were possible to accurately locate such a manager in "real time", he or she would be so swamped with very large accounts that a small portfolio would be unlikely to get a look. As it is, the big pension funds and such frequently chase the "hot manager" from the past couple years (often to their dismay).

Brian

Reply to
Default User

formatting link
shares are only $2,900 or so.http://finance.yahoo.com/q/ta?s=BRK-A&t=my&l=on&z=l&q=l&p=&a=&c=%5EGSPC

======================================= MODERATOR'S COMMENT: Please trim the post to which you respond. "Trim" means that except for a line or two of the previous post to add context, the previous post is deleted. Thank you.

Reply to
Froggie

Froggie, as it happens, I already own 80 B shares. It is enough for me and I am looking for alternatives.

i
Reply to
Igor Chudov

On 2009-05-27 15:09:05 -0700, Igor Chudov said

Referral from trusted friends and associates is a good plan. A friend of mine on the East coast told me about a great manager that a friend of his (or maybe a friend of a friend of his) told him about. The manager's name is Bernard Madoff. He has a great track record, and I understand that a lot of very important people invest with him. The only trouble is my portfolio is too piddling little to interest those big players, so regretfully I will have to pass and continue my search for a great manager locally.

Reply to
Don

Private 'investment managers' have to qualify, first, which means an indoctrination into accepted practices. Then, those managers are handed a list of stocks that they are allowed to allocate funds into. The managers then weight the portfolio amongst their preferred 40 to

60 stocks. (Some banks offer only one portfolio, heedless of accepted parameters such as age, use of funds, acceptable return, etc..) The investment management firm has to pass a screen from major brokerages, who recommend them (the usual way of 'finding' one). What the brokerage client selects is, as Peter pointed out, a 'style' from amongst approved managers.

"If you ever saw how sausages are made, you'd never eat one again." There are so many problems that I'm not sure it is possible to separate the "if" from the "how." If a manager, for example, truly adheres to a conservative style, it is hardly worth paying him to sit on a selection of high quality stocks. One could do as well if not better with a stock screener. As Peter Lynch pointed out, and as I have tried various times to show, if one spent as much time selecting stocks as some do selecting managers or funds, one could very well be doing better. I.e. Spreading an aura of 'professional financial management' together with a "fear of one's own abilities" benefits ... whom?

"If you want something done right, do it yourself." My humble suggestion for finding a good investment manager is to look in the mirror tomorrow morning. You get what you pay for. In this case, what you pay - is your own work.

Reply to
dapperdobbs

Depends on when you got in! The 1st investors got their 15% every year, for 15 years, like clockwork.

Chip

Reply to
Chip

And now the trustee is going after that money.

Reply to
PeterL

Dapper, your post is very insightful. I do think that the existing "investment management" landscape is mostly very anti-investor, for the reasons that you indicated. The industry, so to speak, has a goal to take money from the investor.

It is not even very surprising. Seth Klarman explains the same thing very well in his amazing book "The Margin of Safety", of which I have a PDF that I got from rapidshare. The book sells for $600 per used copy due to its very high intellectual quality.

That said, some people have a very strong personality and honest predisposition, and they just might be out there managing money with the clients' interests in mind. Bill Ruane closed his successful Sequoia fund, for example, to give existing investors better returns, as opposed to taking as much money as possible to the detriment of his investors, but to his benefit. This is the kind of person that I have in mind.

There is probably not so many of them. But to say that there are none, may be a stretch.

i
Reply to
Igor Chudov

Two points to consider:

  1. The 1% fee is in addition to other costs like the mutual fund's expenses.

  1. Assuming two similar investment portfolios, an 8% compounded return and 0,000 invested for 25 years, the 1% annual fee (paid to the fee-only manager) works out to be approximately 2,100.

-HW "Skip" Weldon Columbia, SC

Reply to
HW "Skip" Weldon

I have heard of a number of financial products that offer as much as

15% year after year. The only trouble is, you are getting back your own money. If you ever want to sell, you find that your capital is depleted and that somewhere down in the fine print it refers to "return of capital."

I think if you ask questions about these products and refer to the fine print, you will be told that the shares grow in value over the years and you will come out ahead even though part of the attractive income is "return of capital." But like any investment, sometimes growth over the years doesn't happen. Then, you find much of your capital is gone, just like you were dipping into it yourself for monthly expenses.

Reply to
Don

on 5/27/09 5:09 PM Igor Chudov said the following:

Boggle Plan: Your Age as percent in Bond Index and the rest in S&P500 Index. So at 30 years old you are 30% in Broad Bond Index and 70% IN S&P500 Index; at 50 years old you are 50% in Bond Index and 50% in S&P500 Index. Fees are very low and dollar/cost average. Adjust percents slightly per risk appetite.

Reply to
Yadda

My objection to any sort of plans like this is that they are essentially saying "buy regardless of price" or, similarly, "sell regardless of price", as buying and reallocating such a "portfolio" is done regardless of price levels.

To me, buying or selling without regard to prices, is a folly and cannot possibly be a sound investing strategy. Why would one buy something for too much money? Why would one sell something that is very cheap?

Personally, I am rather fully invested in stocks since November-January timeframe due to low stock valuations. Approximately

85% invested. I do not consider this to be imprudent because the risk is much less now compared to a year agoi. i
Reply to
Igor Chudov

Because you can't time the market and with technology leaping forward historical P/E and such is not a great guide going forward though I would like to think I could be beat the market I can't. In the indexing scheme if you think equities are getting frothy allocate more to the bond index fund. And please don't say buy commodities. You have to be an expert with insider knowledge to trade those. I set aside about 20% of my nest egg to trade and see how I can do...It hasn't been great. And has anyone but insiders beat the market since 1997 after ALL costs are factored in?

Reply to
Yadda

When people say it is not possible to beat the market, that is not quite accurate. Some people do beat the market. But when it happens, it can be explained by chance, not knowledge or special skill. A lot of managed funds do have great track records. But that doesn't tell you anything about their future performance. If someone flips a coin repeatedly and gets a string of 10 or 12 heads in a row, that is a great track record of "getting heads." Among some strange cult of coin-flippers, it could be a source of pride. But it tells you nothing about what will happen in the next 10 flips.

Even if there were some special expertise that would enable a fund manager to achieve consistently superior results, the chances of a small investor actually finding him or her and buying into the fund in question would be extremely small.

Reply to
Don

Igor has the right idea. I am also highly invested in the stock market. Bond rates are too low to make them worthwhile.

You can beat the market if you research the companies carefully. For instance, in a test portfolio in a contest in another newsgroup, I am up 17% YTD and a majority of the other contestants are also beating the market.

ETFs allow you to buy commodities safely. I have done well with GLD over the past year and selling calls against it.

You could buy something like CLMT and get a high dividend.

-- Ron

Reply to
Ron Peterson

Really? All of the people, all of the time? What length of time and what out performance is required to have a 95% confidence it is not luck?

-- Doug

Reply to
Douglas Johnson

You have to track yourself against the market over at least 5 years to make a determination. Gold has been a horrible store of value of the last 50 years.

Reply to
Yadda

BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here. All logos and trade names are the property of their respective owners.