Fund Managers Require to Be Accessible and Personally Invested
"Place your cash exactly where your mouth is," "Skin in the game," and, "Consume your own dog meals." All phrases that speak about the one factor in the investing globe that numerous fund managers attempt to steer clear of. Accountability. When you hear the word accountability these days it generally refers to CEO's that are on their way to jail, or Club Fed as the locals like to call it. Accountability is, nevertheless, now starting to creep into the vernacular of investors who wonder whether or not the individual that is supposed to be managing their investment believes in it sufficient to put his personal cash into it. A current Morningstar study of approximately six,000 fund problems showed that 46% of the stock funds reviewed had been managed by fund managers with none of their individual money invested in their own funds.
Think about that in realistic terms. You have about a 50/50 shot that the person you are trusting to protect and develop your investment doesn't trust himself to protect and develop his own investment. That is not only a severe issue of accountability, but what about overall performance? Throughout my formidable years at USC, I took a Company Development class that was being taught by a former Controller of General Motors (I don't remember his name and it was throughout the inexpensive gas great times at GM). He devoted an entire semester to what he felt was the one factor that produced people perform at their best. Motivation. Motivation derived from doing nicely in the eyes of other people is a fairly good source, but it's nothing compared to the personal motivation derived from some thing like the nicely becoming of your own investment account. Some of the arguments we might hear from fund managers are that the kinds of investments that they handle don't fit nicely in their portfolio because of variables like age, danger tolerance, and so on. This argument could be made for fund managers in their 30's and 40's that don't invest 30% of their portfolio into the super conservative fixed earnings fund they are managing like a bond fund, but there is really no excuse for investing zero.
I have seen a couple of articles on this subject lately and I thought investors would like to hear about this from a fund manager's perspective. Being a fund manager myself I can inform you that it is personally stressful for me each time we make a decision that will impact the fund and the investor cash we are using. I believe any fund manager that doesn't feel this way is either as well detached or on prescription medication. In addition to the stress of investing someone else's money, the believed that also goes through my mind like a hammer is how a lot money I will shed personally if the investment goes bad. This believed is present for the easy purpose that I am heavily invested in our fund and any bad choice will affect me personally. I don't have the choice of getting a deal go bad, and say "Nicely Mr. Investor, we'll attempt harder for you subsequent time and I am sure glad it wasn't my personal cash that was lost." I believe this type of accountability is the last and most important check in a system of checks and balances that lead a fund manager to a prudent decision.
