Humble Student FROM THE Markets

I have had lots of discussions through the years with investment specialists, the majority of whom are in the brokerage community, who believe that the investment management process is easy. You merely need to choose the right things: the right stocks and shares, the right areas, countries, designs, etc. The rest is merely the “messy” business of implementation.

In practice, I have found that as a portfolio manager I only spent about one-third to one-half of my time figuring out my picks. All that other “messy” stuff, if managed improperly, can result in distressing results. Our diagnostics show that our selection process proved helpful, but why do we underperform? We got fired over a misunderstanding? This is one in a series of posts on everything that “messy” stuff: What now ? after you’ve made your picks I would emphasize that there is no one size fits all answer.

Your mileage will change. If the selection process is choosing what to trade about, portfolio construction is deciding about how much to buy and sell about. Reading your client, or What’s the true benchmark? Benchmarks may differ from one customer to another greatly. Make me money. Don’t lose any Just.

  • By using the technique as given in Rule-8D of the Income-tax Rules, 1962 (as explained above)
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We selected you/your firm because of its history of adding value; or we are committing funds to this asset class by diversifying our exposure between three managers. They are some common good examples just. If you ask me (1) is rare. One particular example of this might be an index fund. If it’s a dynamic mandate and the client has already done a lot of work, this may be a highly personalized benchmark.

Individual investors give (2) as an answer a lot. It might also be the pension plan or deferred settlement plan of a small group of professionals in an organization. Ideally, you should build some sort of timing model to comprehend when the asset course or your selection process enters trouble and reduce risk during those environments. If you don’t have a timing model, work out how much tolerance for loss your client has and then position your benchmark between cash and the market. Translate your risk tolerance estimation into weights of the relative importance of both of these components.

As an apart, my formulation of a standard being the better come back of X and Y is nearly fair, but whoever said that life was reasonable? The answer (3) is very typical of an institutional mandate. It really is a sad truth in life however in general, only top-quartile managers get new possessions and bottom-quartile get fallen.