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Is your fund manager really worth what he costs
| Published: | 19 May at 6 PM |
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Tagged: Money, Study Abroad
Is being a successful investment fund manager more about skill and knowledge, or is it just about luck?
With so many scams taking place in the financial world nowadays, investors are asking themselves whether they couldn’t do at least as well as their fund managers, and save money on top. Most psychologists rate success as a combination of luck, instinct and skill, but investors are more interested in giving over their money to a relatively trustworthy pair of hands.
According to billionaire Warren Buffet, perhaps the world’s most famous investor, finding the right fund manager can be compared to flipping a coin. Buffet explains that, after flipping the same coin three times for each of 1,000 fund managers, the results for 250 managers would be more than satisfactory but 31 per cent of these would have been lucky rather than exceptionally talented.
In the end, he says, due to the law of averages, none would actually show profits. Basically, research by Standard and Poor’s over a five year period has shown that, in spite of modern-day technology, 25 per cent of funds underperform, 25 per cent crash, 25 per cent shut down and 25 per cent outperform.
This leaves the average investor a one in four chance of finding a treasure of a manager amongst the trash. Another point is that even poor managers can win out because anyone can make money at the top of a cycle.
The stars, it seems, are those who can win despite tough economic cycles. Wealth manager Andrew Wilson believes that investor behaviour must also play a part in any study of fund performance. The success of any fund, he states, depends on how many investors buy in as much as it depends on fund managers’ behaviour.
So, it’s the old story of paying your money and taking your choice. However, it seems that choosing the best fund manager could be compared with betting on your favourite horse and simply hoping it’ll win.
With so many scams taking place in the financial world nowadays, investors are asking themselves whether they couldn’t do at least as well as their fund managers, and save money on top. Most psychologists rate success as a combination of luck, instinct and skill, but investors are more interested in giving over their money to a relatively trustworthy pair of hands.
According to billionaire Warren Buffet, perhaps the world’s most famous investor, finding the right fund manager can be compared to flipping a coin. Buffet explains that, after flipping the same coin three times for each of 1,000 fund managers, the results for 250 managers would be more than satisfactory but 31 per cent of these would have been lucky rather than exceptionally talented.
In the end, he says, due to the law of averages, none would actually show profits. Basically, research by Standard and Poor’s over a five year period has shown that, in spite of modern-day technology, 25 per cent of funds underperform, 25 per cent crash, 25 per cent shut down and 25 per cent outperform.
This leaves the average investor a one in four chance of finding a treasure of a manager amongst the trash. Another point is that even poor managers can win out because anyone can make money at the top of a cycle.
The stars, it seems, are those who can win despite tough economic cycles. Wealth manager Andrew Wilson believes that investor behaviour must also play a part in any study of fund performance. The success of any fund, he states, depends on how many investors buy in as much as it depends on fund managers’ behaviour.
So, it’s the old story of paying your money and taking your choice. However, it seems that choosing the best fund manager could be compared with betting on your favourite horse and simply hoping it’ll win.
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