The fund manager in the financial world plays the same
role as a bookmaker in the gambling world. That is, the objective of both is to
put themselves in a no lose situation while the client takes all the risk.
People usually understand this intuitively when it comes to bookmakers, but
have more trouble understanding that fund managers operate in exactly the same
way.
A fund manager once told me: “It’s the best business in
the world, at the end of the month we transfer our management fee from the
client’s account to ours, it doesn’t matter what our performance was like and
we don’t even have to send out an invoice and await payment.”
Being a fund manager is actually much easier than being
a bookmaker because bookmakers have to be able to set the odds very accurately
and also manage their book carefully in order to try and balance it. This takes
real skill.
A fund manager needs none of these skills. He just
needs to take money, invest it to more or less mirror an index and then sit
back and take a fee. If he outperforms the market it was because he has
superior stock picking skills, if he loses money, it’s because the global economy
was weak. With only a handful of staff, he can manage huge amounts of money and
his remuneration will be the stuff of dreams for 99.9% of the population.
With this is mind, below is a list of characters that
one will frequently come across in the financial world, trust them to your
detriment!
1.
The
P.T. Barnum fund manager (one who indulges in legalised theft):
A fund manager who has had a plethora of previous positions (incarnations),
none of which was successful but due to outrageous fee structures they were
able to walk out of each “incarnation” with millions of dollars, while their
investors walked out with poor performance or nothing at all! This character
relies on investors not doing their due diligence (this can almost always be
relied upon). After one failed “incarnation”, our man will reappear with a
differently named vehicle which will enrich him further at the expense of the
investors, this cycle will continue ad
infinitum. P.T. Barnum once quipped: “No one ever went broke under-estimating
the stupidity of the public.”
2.
The
up and comers (get rich, or kill your clients trying):
A young guy (or guys) who have had a few years working in an investment bank or
for some prominent fund manager who now deem themselves suitably qualified to
manage hundreds of millions of dollars. The end game of course is to make sure
that they end up living in mansions and driving Ferraris care of “management
fees” which are transferred from the client’s bank account to theirs regardless
of performance. Sometimes they will be profiled in a prominent publication which
will add a veneer of credibility to people to whom such credibility should be
withheld pending much longer performance results.
3.
The
Buffett acolyte (Buffett says this, Buffett says that, Buffett drinks Coke):
We have all seen plenty of these. The fund manager who espouses everything
Buffett, but whose performance is vastly inferior to Buffett. They have
become multi-millionaires not because of their investing prowess, but due to
the absolute stupidity of those who entrusted them with their money. Please
understand people that the only way you can get Buffet-like returns is by
investing with Buffett! Makes sense doesn’t it?
4.
The
Publicity Whore (the media gave me false credibility):
This is the guy you see in the media all the time. He knows nothing, but he
looks and sounds convincing on camera or on radio. He should never (ever) be
trusted with your money.
5.
The
Newsletter Writer (those who can do, those who can’t write):
As they say in the betting world, a successful bettor can either bet his own
picks or sell his picks to someone else, however, an unsuccessful bettor can
only sell his picks to someone else (i.e to a patsy). Newsletter writers are
100% in the latter category, end of story. It’s astonishing to me that
thousands of people cannot understand this. Please don’t be their patsy.
6.
The
One-Trick Pony (king for a day, fool for a life-time):
This is the guy who made one accurate call during his entire career which
attracted a lot of publicity, he’s never made a correct call since, but he must
be a genius because he made that one correct call. Also known as “Polish clock
guy”, based on the old Polish saying: Even a clock that is broken is correct
twice a day.
7.
What
all of the above need to thrive: Lots of dumb money from
people who have abrogated responsibility for their financial future.
One of my great friends
who was a fabulous intuitive trader (who sadly is no longer with us, but made millions
during his life), once remarked about a person we both knew: “The guy is a
genius, he must have an IQ of 150, but when it comes to money, his IQ is closer
to 90”. All of the above characters rely on those sorts of people.
