How does one evaluate professional money managers ???

In this note , we attempt to distil and list certain traits that form the fabric of successful money managers . Understanding these traits , not only helps to evaluate professional money managers, it may also help you to stack up well as an individual investor.

 Countless studies have shown that the long-term investment success is a function of two critical factors : the right approach and the right traits (right person)  .

 The Right Approach:

 Think about investing as purchasing of companies rather than  trading of stocks ( buying a “piece of business” approach)

  • Ignore the market , other than to take advantage of its mistakes.
  • Buy a stock when it is on sale – as Graham says “ secret of sound investment is in three words – “Margin of Safety”.
  • Do not focus on predicting macro-economic factors
  • Shun consensus decision making , since investment committees are generally a route to mediocrity.

 The Right Traits:

 Sound understanding of economics of businesses : how industries work and companies compete.

  • Objective and Independent : neither take comfort in standing with the crowd nor derive pride from standing alone.
  • Rational and not driven by emotions . As often said – “Most of the activity that makes active portfolio management active is wasted ..(and is ) often triggered by ineffective psychological responses .

 Much of this may seem strikingly obvious , but vast majority of money is managed by companies that have neither the right approach nor the right traits , but are run by otherwise extraordinarily intelligent people . Then , as often said , most universal truths in life  are simple, but  are rarely practised.

 Happy Value Investing !!!

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