So you hire a consultant for their “expert” view
They conclude his investment philosophy is sound because he buys undervalued companies, his track record is excellent and he’s a person of integrity
But you shouldn’t invest …. because
“What if something happens to Warren?”
Meaning your $1000 didn’t compound to $18m today…
Or it’s 2010 and you’ve just heard about this other manager who’s recently launched
So you call in a friendly consultant to take a look (a different one)
They conclude he’s got a great track record, calls a spade a shovel, and likes quality growth companies – the perfect strategy for this environment of QE and low interest rates
But no, you should stay away
Why?
“What if something happens to Terry?”
Meaning your $100k doesn’t grow to $495k at a CAGR of 13.3% in USD
Yes, but these are real risks, what if something DOES happen to the portfolio manager?
So what?
If your fund manager owns mostly liquid / tradeable shares, then you’re fine
If it doesn’t, you aren’t
Even if nothing happens to the portfolio manager – just ask any investor in Woodford Funds…
But if you’re really worried that there is no one qualified to take over, you simply send in a redemption form, the fund sells the underlying holdings, and you get the money in a few days
That’s the downside – it’s really no big deal
The upside is you have Warren or Terry or Boutique Manager X run your money for you for the next 20 years
It’s called, “asymmetry”
Imagine getting this investment report from an investment consultant
Dear Client,
Unfortunately, your portfolio generated another year of mediocre returns because the large investment management team struggled to overcome internal politics, slow decision making and a plethora of other behavioural finance flaws endemic in large organisations
However, the “good news” is that if the portfolio manager had died during the year, you would have been assured of those same mediocre returns..
Yours
Consultant
PS in other good news, Mediocre Manager’s fees were also 0.5% lower than all the Boutiques we side-stepped. Yes, we know that only requires a paltry 5% outperformance on 10% of the Boutique manager’s portfolio, but hey-ho, “every little helps”
The truth is something will happen to ALL of us one day
We don’t know when – it could be next week, or in 20 years time
But as long as the fund has liquid holdings, you needn’t worry
My wife knows that I think my team will do just as well without me, maybe even better, so there’ll be no redemption forms from my family when I fall off my bike
So rather than asking,
“What if something happens to Boutique manager X?”
Maybe we should all think a little more about
“What if something doesn’t” 😉