vlogolution network » mortgage crisis

Which “Expert” Portfolio Manager would you choose?

Alexander P Morris — Tue, 01 Nov 2011 21:46:59 +0000

(Interloper) “Outside of the entertainment factor, the primary differences between the two archetypes is that the first has risen to their position by attracting new money while the latter holds their position by effectively managing money. Type One*, with a travel schedule encompassing 150 days annually is dependent of their model for performance because they have much less time for specific analysis – hence the preponderance of more black box, momentum strategies. They are also much more dependent on their analysts and traders back at the office who must make the majority of the day-to-day decisions. Type Two* on the other hand, only really cares about the analysis. They are pissed when the marketing department drags them put of their cave before they’ve finished investigating a fishy footnote in the last quarterly statement. (Don’t think I’m exaggerating with that, btw. I personally know PMs that will spend weeks on a single footnote).”

“Here’s the important part: the industry loves them some Type One PMs. Momentum managers trade a lot more than value managers and this keeps the trading desk commission train rolling. The accommodating Type One manager is, unbelievably, available for evening functions where Financial Advisors can bring their top clients who, inevitably will be running around with blank checks by slide eight. Everybody makes money.”

“If you’ve read this far you have probably guessed where my preference lies. For my own money, I would much rather have the plodding, boring manager who obsesses about every aspect of a potential or existing holding, rarely straying from a concentrated portfolio of companies they are completely comfortable with. Like Buffett, they do not feel compelled to make changes (and thus rarely get referrals from capital markets) and will literally wait years for a stock to drop to valuation levels they find attractive. Type Twos will also avoid hot sectors and thereby escape the attention of the individual investor until the market craps out, and they don’t feel like putting more money into the market anyway. I pay Type Twos, in other words, to exhibit the discipline that I don’t have.”

” .. it remains important to understand the industry’s bias in this regard and that ‘best manager’ may mean something much different to the average investor than on the trading floor.”

* “Type One: Physically attractive, Ivy League (Harvard or Wharton, almost always), momentum-based investment strategy. .. They will be compelling, energetic, will pause and answer your question in a non-patronizing way. They will linger after the presentation until everyone has left, happily chatting about markets or whatever else the fellow-lingerers want to talk about. .. They are, in short, marketing machines.

Type Two will be older, having spent far more time as a senior analyst due to a dearth of personal charisma. They will likely not be Ivy League. Type Two will execute a more fundamentally-based investment process. Their longer performance track record has a better chance of being stronger, beating the index by a few percentage points per year by holding value during bad years. Type Two’s presentation will be so dull that you’ll want to gouge out your eyes after half an hour.”

Full Story: PORTFOLIO MANAGER SEARCH PRO TIP: FIND THE WORST PUBLIC SPEAKER POSSIBLE (Interloper)

And finally, this short passage from Michael Lewis’ book “The Big Short” seems to perfectly capture the essence of these points:

“In Dr. Mike Burry’s first year in business, he grappled briefly with the social dimension of running money. ‘Generally you don’t raise any money unless you have a good meeting with people,’ he said, ‘and generally I don’t want to be around people. And people who are with me generally figure that out.’ He went to a conference thrown by Bank of America to introduce new fund managers to wealthy investors, and those who attended figured that out. He gave a talk in which he argued that the way they measured risk was completely idiotic. They measured risk by volatility: how much a stock or bond happened to have jumped around in the past few years. Real risk was not volatility; real risk was stupid investment decisions. ‘By and large,’ he later put it, ‘the wealthiest of the wealthy and their representatives have accepted that most managers are average, and the better ones are able to achieve average returns while exhibiting below-average volatility. By this logic a dollar selling for fifty cents one day, sixty cents the next day, and forty cents the next somehow becomes worth less than a dollar selling for fifty cents all three days. I would argue that the ability to buy at forty cents presents opportunity, not risk, and that the dollar is still worth a dollar.’ He was greeted by silence and ate lunch alone. He sat at one of the big round tables just watching the people at the other tables happily jabber away. ”

How I wish I had been there that day to sit with him.

Why People Don’t Buy Gold, and Why it’s Stupid to Think for Yourself

Alexander P Morris — Sat, 26 Mar 2011 20:50:14 +0000

Why people don’t buy gold, and why it would have been smart to buy a house at the top of the market, so long as everyone else was doing it, and famous well-known economists like Alan Greenspan, Ben Bernanke, and others said real-estate would never go down. Learn why it’s stupid to think for yourself. Very funny video, and with our current state of affairs, sadly quite true…

On the other hand, it also helps explain why there is so much opportunity in the markets, as people make the same mistakes over and over again, as they try to avoid “feeling stupid”, or being called “strange and weird”.

Note: Posting this video wasn’t meant to suggest that NOW is the best time to buy gold (alas, it is already up over 6 fold over 10 years), and in fact in the past I’ve suggested that silver would likely be an even better investment longer term (as does seem to be the case so far). However, perhaps for the real point… don’t be one of the lemmings running out to buy it when everyone’s finally talking about what a great investment it is and how it too can’t ever go down. There is a time and cycle for everything. In the meantime, study, research, make up your own mind, and possibly consider picking some up when it’s unfavorable or unfashionable to do so. (You can also check out some of the related links I posted below).

As Benjamin Graham once said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

Chinese Professor Video – The Deficit Trials – Who will you be working for in 2030?

Alexander P Morris — Mon, 22 Nov 2010 21:36:38 +0000

Citizens Against Government Waste (CAGW) recently unveiled a national ad addressing our country’s spending addiction, the dangers of relentless deficits, and the corrosive nature of our national debt.

This new ad, which features a chilling look at one potential future scenario if America continues on its current destructive fiscal trajectory, is a 2010 homage to “The Deficit Trials,” a 1986 ad that was produced by W.R. Grace & Co. For those who were able to view it, the ad caused a sensation; it was considered so controversial at the time that the networks refused to run it.

J. Peter Grace, CAGW’s co-founder and the chairman of President Ronald Reagan’s Private Sector Survey on Cost Control (the Grace Commission), was alarmed about what the debt would do to future generations. The national debt was $2 trillion in 1986, when “The Deficit Trials” ad was denied broadcast time; today the debt stands at $13.7 trillion and is projected to reach 140 percent of GDP in two decades, the time in which the new CAGW ad is set.

The new ad is part of an ongoing communications program in CAGW’s decades-long fight against wasteful government spending, increased taxes, out-of-control deficit spending, and a crippling national debt that threatens the future and survival of our country. CAGW plans to run the ad on major cable networks throughout the rest of 2010 and into 2011.

“Speaking the truth in times of universal deceit is a revolutionary act.” — George Orwell

Quantitative Easing Video Explains Q.E.2 in terms everyone can understand – with Transcript

Alexander P Morris — Mon, 15 Nov 2010 19:48:37 +0000

This awesome and quick video explains quantitative easing in a simple and easy way for everyone to understand, and it’ll keep you laughing (or crying) the whole way through…

One note, granted this video hits heavily on Ben Bernanke, it’s certainly not all his fault – not by a long shot. Living beyond our means can only go on so far, and politicians are more than happy to take advantage of public sentiment to fulfill their own agendas and help their “friends” through gargantuan spending programs and greater controls enacted under the guise of serving the “greater good”.