The great majority of institutional investors are plagued with a short-term, relative-performance orientation and lack the long-term perspective that retirement and endowment funds deserve.
[Taking about institutional investors] Hundreds of billions of other people’s hard-earned dollars are routinely whipped from investment to investment based on little or no in-deph research or analysis.
You probably would not choose to dine at a restaurant whose chef always ate elsewhere. You should be no more satisfied with a money manager who does not eat his or her own cooking.
Selling is difficult for money managers for three additional reasons:
1) Many investments are illiquid, and disposing of institutional-sixed positions depends on more than simply the desire todo so.
2) Selling creates additional work as sale proceeds must be reinvested in a subsequent purchase. Retaining current holdings is much easier.
3) SEC, the governmental agency with regulatory responsibility for mutual funds, regards portfolio turnover unfavorably. Mutual fund managers thus have yet another reason to avoid selling
Institutional investors are caught in a vicious circle. The more money they manage, the more they earn. However, there are diseconomies of scale in the returns earned on increasingly large sums of money under management.
Allocating money into rigid categories simplifies investment decision making but only at the potential cost of lower returns.
Window dressing is the practice of making a portfolio look good for quarterly reporting purposes.
As depressed issues drop further in price, attractive opportunities may be created for value investors.
Unfortunately the appropriate relationship between bond yields and stock prices cannot be incorporated into a computer program. There are simply too many variables to allow investors to determine a relationship today that will apply under every future scenario.
Value investors believe that stock prices depart from underlying value and that investors can achieve above-market returns by buying undervalued securities.
Investing without understanding the behavior of institutional investors is like driving in a foreign land without a map.