• 131 - How to choose an Investment Manager?

  • Mar 13 2022
  • Durée: 34 min
  • Podcast

131 - How to choose an Investment Manager?

  • Résumé

  • Mental Models discussed in this podcast:
    • Opportunity Cost
    • Alpha
    • Superpower of Incentives
    • Competitive Advantages
    • Process vs Results
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    Show Outline Key Concepts for selecting a Portfolio Manager
    • Choosing an investment manager is a lot like choosing a stock
      • Don’t invest in anything you don’t understand - this includes managers
      • What is their process?
      • How do they earn alpha? Do you need alpha?
    • What are your financial needs?
      • Wealth preservation?
      • Wealth Growth?
      • Do you need alpha?
        • Not every manager can provide alpha.
        • Not every manager seeks alpha
        • Not every investors NEEDS alpha
    • Value
      • Cost - How are they paid? What is the expense structure? How does it compare to alternatives?
      • Management Fees
      • Performance Fees
      • Next podcast will be a whole podcast on fee structure, so I’ll limit my discussion on it here.
    • Growth
      • Investment managers inherently benefit from growing AUM. This is unavoidable. Regardless of pay structure. However, you want to understand what drives them. Is investing a passion or a money seeking endeavor?
        • Are they trying to grow AUM?
        • Do they plan to shut down growth at some point?
    • Quality
      • Competitive advantages?
        • How are they different from other investors?
      • Communication?
        • How do they communicate with clients?
        • Do you understand their process? Are you comfortable with them?
      • Style
        • Size of stocks
        • Liquidity
        • Value vs Growth vs Quality?
        • Overlooked companies?
        • Index hugging?
        • Concentration vs Diversification
    • Custom Portfolios vs Investment Fund
      • Some managers will setup a customized portfolio just for you
      • Or do you simply want to own a portion of a mutual fund or hedge fund.
    • Past Performance - Luck vs Skill
      • It is difficult to analyze a portfolio manager based on past performance
      • Instead, focus on their process.
        • If you understand their process you can potentially understand the odds of future outperformance (if you even need outperformance)
    Summary:

    Choosing an external investment manager for your wealth is a difficult decision. In this episode, I outline the key concepts you should consider when evaluating someone to be your personal portfolio manager.

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