Seven Sins of Fund Management

Sunday, February 12, 2006 | 07:12 AM

There is a terrific PDF (warning -- its 105 pages) on the Seven Sins of Fund Management. It is a behavioural critique by James Montier, the Global Equity Strategist of Dresdner Kleinwort Wasserstein, and its full of all sorts of smart observations, backed up with data and charts.

I haven't read prior work of Mr. Montier -- but this PDF made me interested in his book, "Behavioural Finance: A User's Guide."

I may be  referencing parts of the PDF in the future, but if you want an overview, here are the 7 Deadly Sins

Sin 1 Forecasting
The folly of forecasting: Ignore all economists, strategists & analysts
Do analysts understand value: who is the greater fool?

Sin 2 The illusion of knowledge
The illusion of knowledge, or is more information better information?

Sin 3 Meeting companies
Why waste your time listening to company management?

Sin 4 Thinking you can out-smart everyone else
Who’s a pretty boy then? Or beauty contests, rationality and great fools

Sin 5 Short time horizons and overtrading
ADHD, time horizons and underperformance

Sin 6 Believing everything you read
The story is the thing, or the allure of growth
Scepticism is rare, or, Descartes vs. Spinoza

Sin 7 Group decisions
Are two heads better than one?



Seven Sins of Fund Management
James Montier
Dresdner Kleinwort Wasserstein, November 2005

Sunday, February 12, 2006 | 07:12 AM | Permalink | Comments (7) | TrackBack (2) add to | digg digg this! | technorati add to technorati | email email this post



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Barry Ritholtz:There is a terrific PDF (warning -- its 105 pages) on the Seven Sins of Fund Management. It is a behavioural critique by James Montier, the Global Equity Strategist of Dresdner Kleinwort Wasserstein, and its full of all sorts... [Read More]

Tracked on Feb 13, 2006 10:01:34 AM

» Seven Sins of Fund Management from Nyquist Capital
Picked up a link from The Big Picture to an interesting paper (warning, .pdf link) critiquing the behavior of fund management. Paper was written by James Montier at the German investment bank Dresdener Kleinwort Wasserstein. The abstract: How can behav... [Read More]

Tracked on Feb 13, 2006 10:32:53 AM


Thanks for the link Barry. A trend trader? :) I guess we have something else in common other than our first names. I perused the first few pages and it's so appropriate that in parenthesis the seven deadly sins are associated with each. Leave it to the Pope to accurately describe much of Wall Street. I guess it could also be used to describe the Archdiocese of Boston.

I find that a healthy dose of skepticism for all of life's activities is one of the best skills one can develop. And it is a skill because you need to develop it. I don't know how many times I've been told something can't be done only to prove them wrong in spades. Well, not all of the time but many times. I'm from Missouri. I trust no one on Wall Street. I develop my own comfort level over time with those that I know will suit my needs. Then I graciously take from them what will help me.

Recently, one of the world's largest financial firms, whose name will remain anonymous, told my mother to invest her entire retirement in a "balanced" portfolio which was weighted over 60% stocks and 30% bonds. Neither of which I find tremendously attractive right now. My mom just turned 65 and retired. It is a significant six figure sum and nearly her entire life savings other than her house. Her entire pension plan and 401K was liquidated into cash when she retired. So, at a time when so many dislocations exist and so much of historical precedence says to be careful, they wanted her to do what? If you were 25 and still working, I might be more foregiving. But this is the only livelihood of a retired person.

They don't need to understand economics, technical analysis, or anything else. But for God's sake, how can you not understand history and ask someone to invest their entire life savings when a near term market peak is likely developing? Oh, and take 1.5% fee off the top for such a recommendation. I think this foolishness is the same as exhibited by the fund comments by DrKW.

Posted by: B | Feb 12, 2006 11:24:37 AM

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