Recently I’ve been assisting in the selection of managers for an extensive portfolio of liquid assets. The engagement surprised me more than I imagined at the outset.
When we began, I set down two basic axioms:
“First, set the portfolio on a sustainable cost path, remembering every basis point saved is a basis point kept that will grow exponentially with time.”
“Second, no matter who the managers are, they are all going to be essentially the same: none of them has a better crystal ball or a more efficient mousetrap.”
A corollary of the above is “There’s always time to find the real talent in investing; just don’t lose patience.”
The roster of contestants came from all over the investing world. With one exception, all exhibited a rudimentary framework for approaching the previously announced objectives, using clearly pre-packaged “solutions” even though they all knew a knowledgeable consultant would be present at the meeting. To paraphrase, Mohammed had to go to the mountain, or else. In one particular case, we were offered almost underhanded responses and downright condescension in response to questions on their presentation. In another, the institution equated TER (total expense ratio) to their cost, and not the overall burden to the client.
Coincidentally, a friend of mine had just forwarded me a page in a blog that explained the attitudes exhibited during the majority of these types of encounters. I encourage you to take a peak at the piece, as I could not match the clarity of the exposition even if I tried (you can find it here; scroll to or search for Asset Managers or Asset Gatherers?).
We were dealing with asset gatherers, but that did not explain the variety and synthetic creativity with which the presentations were filled (again, with one exception). Nowhere were we given a simple table of holdings with a linear listing of all the information to be considered, so days after the exercise we are still patching it together. This for me was ample proof that Axiom 1 and 2 were valid.
I operate on the European side of the Atlantic, so some of these observations may not apply to the US experience. It is somewhat baffling that after all these years of wealth growth and increased sophistication, of institutionalizing “risk management” and sundry concepts, of popularizing the selection of funds of any type, and of touting business plans which highlight the importance of the “private client” we still find that products instead of advice dominates the game.
An acquaintance of mine used to run a very successful regional fruit distribution business. He once told me “You know what’s tough about distributing fruit? If you don’t get the quantity and timing right your are left with rotten stuff in your hands.” Wise words indeed. It’s time to get rid of the rotten pieces.
Photo source: http://kenetete.com.