For decades, investors have obsessed over the notion of “beating the market” or finding the best fund managers who can. In industry marketing jargon, this is called generating “alpha”.
There is however no fancy Greek term for the high fees you pay for this privilege.
Have you ever second-guessed your phone or car’s GPS?
I have. Mostly to my detriment, but not always. I’ve done it when the traffic ahead of me on the route is just too heavy and I find it difficult to stay put. In these circumstances the alternative routes I have tried are even worse. My bias has been that I’m too impatient to just sit there. However, after a few of these errors I have learnt my lesson and now trust the GPS.
The relationship between return and risk is widely acknowledged in investing – but, do we really give enough thought to the risks we take when we invest our money? Probably not. This is because risk is difficult to conceptualise and it’s most often not portrayed in ways that are very clear, nor apply directly to us.
Nine months later! Well actually it’s more like 12-18 months to get a FAIS licence according to my lawyer friend John, who deals with these matters. My point is – it takes less time to make a human being than starting an Asset Manager!
“Are you crazy?”
That was the first thought that entered my mind, when a friend – let’s call him “Warren” – told me he wanted to start an asset management business.
Warren has just left his employer after a 20-year career, which I’d characterise as pretty successful. As a lead portfolio manager, he has managed assets on behalf of clients exceeding R50 billion and delivered good returns which ranked above average and sometimes top quartile in the performance surveys.