Saturday, December 27, 2014

My sunday Column on Money Management Values


  1. I am pretty disappointed in someone who proclaims to have at heart the best interest of the reader is practicing such sloppy journalism. You don't offer a definition of money manager and how you're using it. You close using the word nuance, yet have practiced none yourself. Do you have an employee sponsored 401k ? Quite frankly, the one sponsored by my employer is easy to read while Prudential (who was chosen under your watch for the state of NC) makes it incredibly difficult to make good choices around ROR and fees. To make a blanket statement is intellectually lazy. Where are the citations around the "average portfolio" holding 75 to 100 holdings and then turning them 75-100% of the time. This doesn't event make sense. If it takes the average mutual fund 14-16 weeks to move in and out of a position then your math flat out doesn't work. Of course, if the reader knew what kind of money manager you were talking about this too could add some clarity. Lastly, back to the nuances you are completely missing the gap between behavioural economics, decision making and the function of an individual's money. Before you keep pushing the fear mongering the news outlets are so good at and practicing hyperbole, in your own words, take a step back and leave your bitterness at the door.

    1. Rachel -- sorry you did not like my recent column. Let me clarify a few points.

      1. I was not involved with the selection of Prudential. I managed the states defined benefit plan, not its supplemental retirement board or 401(k). Prudential was selected by the board and staff of the supplement retirement program. I also was not employed by the state at that time.

      2. Money manager or portfolio manager (which ever you prefer) is a pretty common term for someone who selects holdings for an investors portfolio. It doesn't require definition each time I use it in a column.

      3. If you are interested in the number of holdings and turnover of mutual funds or institutional portfolios, I suggest you consult the Investment Company Institute, Morningstar or the writings of John Bogle, former Chairman of Vanguard. Holdings and turnover vary a great deal. Some managers hold as few as 15 to 20 securities and others hold 200 or more. 75-100 is about right for an equity mutual fund. Turnover also varies a great deal. A few managers only turn the portfolio over about 25% per year, but others turn the portfolio over 200% per year. The average for active management is 75% to 100% (indexes are much lower at 15% to 20%).

      4. Moving in and out of a position is different from turnover or holdings. In liquid securities (eg., AAPL) it will only take a day or so to build a position. An illiquid stock may require a couple of weeks. The time to move into a position is not just a function of the size of the position in a portfolio. It also depends on the trading volume of the security and the willingness or unwillingness of a manager to move the stock price as he trades the position.

      5. I have no bitterness about money management at all. The profession treated me extremely well and I found it intellectually challenging to manage tens of billions of dollars. I do have concerns that money managers aren't adding value to their clients portfolios, be they retail or institutional clients.