Most mutual fund managers have impediments that degrade their ability to get the best returns for their investors.
One of them is that the biggest investors in their funds are constantly wanting attention. This takes the portfolio manager away from their focus on selecting great investments and managing the portfolio. It can eat up 25 to 50 percent of their time!
Add the need to report up their management ranks and you wonder how they have the time to invest. Isn't the investment process where you would think they would be highly focused? The reality is that it isn't.
Investors may want their mutual fund managers to pick the best investments, but that doesn't happen a lot either. If they are down on a well-known name such as IBM, it is forgivable, but to be down on an "up-and-coming" stock can risk their career. Therefore, they "stay with the pack" and avoid the stocks which could get the best returns over time.
A quote from Peter Lynch in his book, One Up On Wall Street, drives this point home.
"It's no wonder that portfolio managers and fund managers tend to be squeamish in their stock selections. There's about as much job security in portfolio management as there is in go-go dancing and football coaching. Coaches can at least relax between seasons. Fund managers can never relax because the game is played year-round. The wins and losses are reviewed after every third month, by clients and bosses who demand immediate results."
Be smart, be well-read, be aware and be successful.
