1. Sunday, April 17th, 2016
    starting somewhere

    “You have to start somewhere.”

    I hear that quite a lot when I ask why those trying to select managers begin with some kind of a performance screen.

    In fact, if you read the materials of firms who are in the business of selecting managers, you’ll often see similar statements.  For example, from Litman Gregory:  “We have to start somewhere and so, like everyone else, we often begin by screening for funds with compelling long-term track records.”Litman Gregory | The article is titled, “How We Seek to Identify Great Active Managers.”

    “Like everyone else.”  Yes, it is the place where almost everyone starts.  At least “long-term” was in there with italicized emphasis; that is a bit more defensible, but only modestly so.  Another pieceLitman Gregory | This is a more step-by-step overview of the firm’s approach. from the same firm contained this warning, also in italics, “The problem is that past performance is ... continues

  2. Wednesday, March 23rd, 2016
    work issues

    The February 28 edition of the New York Times Magazine was titled “The Work Issue.”  The articles within it received widespread attention, especially the lead one about Google studying what makes for “the perfect team.”New York Times Magazine | Yet another example of the supposedly moribund mainstream media driving the discussion.  The best content often comes from the same old places.

    While perfection is a lofty goal, its research showed that the best teams tended to have two things in common.  “First, on the good teams, members spoke in roughly the same proportion, a phenomenon the researchers referred to as ‘equality in distribution of conversational turn-taking.’ . . . Second, the good teams all had high ‘average social sensitivity’ — a fancy way of saying they were skilled at intuiting how others felt based on their tone of voice, their expressions and other nonverbal cues.”

    In contrast, a group of very smart people ... continues

  3. Tuesday, February 23rd, 2016
    shared delusions

    It shouldn’t be too controversial to say that an investment program ought to be grounded on reasonable expectations.  Asset owners and the asset managers who serve as their agents should proceed together with realistic notions of the possible outcomes — and the probable ones.

    Aspirational goals might seem attractive (who doesn’t want to generate out-sized returns?), but are likely a ticket to failure, not success.

    I bring this up because of a posting by Charlie Bilello of Pension Partners,Pension Partners | It’s called “The Hedge Fund Myth,” although my point is not limited to hedge funds. which begins with excerpts from mandates written by asset owners that are looking for hedge fund managers.  The expectations are twisted, to say the least.

    Several mention the need for a good “pedigree.”  While there have been many stories of people who left a successful firm and went on to create one of their own, there are many disasters too.  ... continues

  4. Sunday, January 31st, 2016
    ripped from normalcy

    Long-time readers know that I rarely stray from a regular pattern in these essays, in which I hope to identify a persistent issue in the investment ecosystem and offer creative ways to think about it.  Almost never do I get personal about anything.  This one’s an exception, so proceed accordingly.

    In October, I wrote two pieces that I intended to be part of a longer series designed to “look at ways in which organizations and individuals can step out of the comfortable cocoons that they call home.”

    Soon thereafter, that became something other than an academic exercise for me.

    I was diagnosed with cancer on the base of my tongue.  It was too advanced to remove surgically, so I began a series of treatments designed to eradicate the tumor.

    Most notably, I’m participating in an immunotherapy drug trial, which will continue for a few more months.  Part of a revolution in cancer care, this drug’s role is to break down the defenses of the tumor to allow my ... continues

  5. Wednesday, October 28th, 2015
    open networks

    In my last posting, regarding home bias and the difficulty of seeing past familiar territory to other possibilities,the research puzzle | Believe it or not, the second season of Fargo is based in my hometown, which is what spawned that posting. I promised to provide some thoughts on how to get more information from the outside.

    A piece by Michael Simmons, “The No. 1 Predictor of Career Success According to Network Science,”Observer | Simmons is the co-founder of Empact; its goal is to “alleviate mental & financial poverty.” included a graphic that looks roughly like this:open networks_edited-1

    Simmons wrote:  “Most people spend their careers in closed networks; networks of people who already know each other.  People often stay in the same industry, the same religion, and the same political party.  In a closed network, it’s easier to get things done because you’ve built up trust, and you know all the shorthand terms and unspoken rules.  It’s comfortable because ... continues