Five phrases that signal a fund manager is covering up

Sunday, August 20, 2006 | 08:46 AM
Interesting article at Marketwatch advising you how to spot a Fund Manager that is not being forthcoming as to his performance.

According to Chuck Jaffe, too many fund managers "get it wrong when they get things wrong." If their money-management mistakes lead to poor excuses, or indifference, oroverreactions -- then you may have a bigger problem than an underperfomring fund -- you have a bum manager.

Folks like Bill Miller and Warren Buffett know they can talk frankly about stretches of bad performance without losing the respect of investors. They know that investors won't flee their funds because of a poor stretch.

Jaffe observes that "not every manager has that kind of tenure, record or self-confidence." He outlines some clues to look for to see if your fun dmanager is "coming clean or covering up."

Beware the following five phrases:
1. 'It's a challenging market right now'
(variation:  "It's a stockpicker's market")

Duh. Investing is always challenging, even when the market is booming. You buy a fund for the manager's expertise. A manager who blames the stock market effectively is telling you that "It's not a good time to be relying on luck."

2. 'We underestimated the risk ...'

The manager's job is to take manage risk appropriately. Better to invest in a way that is consistent with the fund's long-term mission than to fail to properly consider risk -- and blow up taking too many big chances.

3. 'We're cautiously optimistic ...'
The most overused phrase in the fund manager lexicon  -- and it is essentially, meaningless. All fund managers are cautiously optimistic; it's the nature of the beast. No Managers say they expect to lose a fortune; No corporate lawyer will let them say they expect to make a fortune.

4. 'The long view of our performance shows ...'
The quarterly letter is really designed to talk about recent results and future prospects. Managers should acknowledge when they're struggling, not gloss over it.

5. 'We're taking steps to improve returns'
This is another statement that managers should make regardless of market conditions or recent performance. It's also a warning sign: look closely to see if the fund is engaging in "Style Drift."

Interesting set of rules -- good stuff, Chuck.


Loser lips:  Five phrases that signal a fund manager is covering up
Chuck Jaffe
MarketWatch, 6:32 PM ET Aug 6, 2006

Sunday, August 20, 2006 | 08:46 AM | Permalink | Comments (7) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



TrackBack URL for this entry:

Listed below are links to weblogs that reference Five phrases that signal a fund manager is covering up:


6. "We've recently paired back our domestic exposure."
7. "We expect some more short-term volitility"
8. "We still believe that Large Caps will be the place to be and that small caps will stop outperforming."

Posted by: Larry Nusbaum, Scottsdale | Aug 20, 2006 9:33:47 AM

The comments to this entry are closed.

Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      


Complete Archives List



Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:

Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo



Odds & Ends

Site by Moxie Design Studios™