The recent Raging Bull awards got me thinking about active fund management again. For those, of you who don't know the Raging Bull awards are South Africa's version of the Oscars for active fund managers. It is a back-slapping, pointless exercise and is at odds with a fund manager's fiduciary...
The recent Raging Bull awards got me thinking about active fund management again. For those, of you who don't know the Raging Bull awards are South Africa's version of the Oscars for active fund managers. It is a back-slapping, pointless exercise and is at odds with a fund manager's fiduciary responsibility. I.e. managing money is about the client, not the manager, buddy! In true marketing machine style, the winners shower the market with press releases about their "achievements". I say, "Thanks for a superior short-term risk-adjusted return (whatever that means), but are your clients any closer to achieving their goals?" Ben Carlson summed it up nicely with the following tweet:
There's good news & bad news. Bad news is you don't have enough $ to retireWhat's the good news? Your portfolio has a great Sharpe ratio — Ben Carlson (@awealthofcs) February 6, 2017
A Sharpe Ratio is a terrible measure of return relative to risk that fund managers like to promote. It is a form of risk-adjusted return (see Raging Bull bit above). Fund managers are so obsessed with winning the race, that they forget about the client. Add to this, clients and advisors are notoriously poor at picking the right funds at the right time (no one has this gift). The problem is huge and I am still thinking about solutions. This is what I have observed so far:
- There are three participants in this problem the client, advisor and fund manager (too many, I'll let you decide who to axe)
- The number of participants means too many fees (fees are the number 1 enemy of reaching your investment goals)
- The fund manager is too far removed from the client
- Fund managers are more concerned with keeping the advisor happy than the client
- Fund managers and advisors chase short-term performance at the expense of client goals
- There is a preference to take action (e.g. buy the latest best performing funds). The more I manage my own money, the more I realise that you should err on the side of inaction. Taking action is stupid most of the time.
Look, I am a realist. The above situation will continue for a long time. Do you want to be taken advantage of? Or do you want to meet your financial goals? The choice is yours. Onto the dividend news. There are no new dividends this week. We have a number of companies declaring results soon so I will keep you posted. I have also added a "What am I reading section" to the Sunday Update. Here it is:
What am I reading
Consistency and Self-Delusions by Ben Carlson
Johnny Depp Did a Bad, Bad Thing
Shoe Dog by Phil Knight (current book I am reading)
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