January is halfway over, so it is once again time to look at the various errors, mistakes and wrong headedness that I succumbed to (damn human!) working in the asset management business in 2010. My mea culpas for 2009 can be found here.
Assessing the performance figures in 2010, there were plenty of things to be pleased with: The Macro calls and stock selection were both on target. We avoided most of the April to July downturn, caught most of the August to December rally.
However, in terms of managing assets, and the business of managing assets, there is lots of room for improvement. Even though these are two very different skill sets, they closely related.
Let’s have at it:
1. Running an Asset Management Business vs Running Assets: This may seem obvious, but it is far more complex than you might imagine. Running an asset management business involves personnel decisions, marketing, raising assets, organization, scheduling, communications, accounting, legal, planning, follow through. I know plenty of great asset managers who are terrible business people, and terrible asset managers who are great business people, lots who are awful at both — and very few who excel at each.
Think about Morgan Stanley or Merrill Lynch — what do they do better, market or run money?
Possible solution: Be more proactive. Defer more of the nitty gritty operational decisions to our COO. Work on Time Management, delegation, and division of tasks by expertise.
2. Too Much Cash: Once again, we ran with too much cash on the books. Despite making the right calls in May (Sell!) and August (Buy), we continued to run too much cash all year. While we beat the benchmarks and had excellent risk adjusted returns, we could have handily outperformed with only 15% or 20% cash.
What I saw happen occasionally was it took a while to find stocks we really liked when we became bullish. Perhaps indecision was at play as well.
Possible solution: We could use ETFs more to increase exposure quickly so we carry less cash sooner and raise exposure more quickly; Better to own positions with tight stops, or to own half positions, than none at all;
3. Great Calls did not make enough money: We picked some terrific stocks on the Institutional side. BWA, TDC, ISLN, RAX — But we did not own these aggressively in managed accounts. While some of this is a function of risk management — small volatile tech names are not suitable for everyone — we surely could have owned some of these..
Possible solution: Put together a basket of the most aggeressive names for managed account ownership. 8 or 10 names comprising a 5 or even a 10 percent position might be appropriate for many investors.
4. Time Management: There simply aren’t enough hours in the day to do everything I want to accomplish. Between research, writing, conference calls, reading, media, etc. the day just doesn’t have enough hours.
Possible solution: Prioritize: Do less of what matters least; TTD: Work on a daily check list, to make sure things get finished; Focus.
5. Cynicism: Last year, I noted the downside of Undue Influence; This year, it is the opposite. There are plenty of very smart people who have outstanding ideas — the trick is knowing who to consider and who to dismiss. Indeed, even some of my least favorite strategists, economists and analysts have value to offer. The trick is knowing who to pay attention to (e.g., Jeremy Grantham) and who to read very selectively.
Possible solution: Don’t be so quick to dismiss others; the world is filled with many smart and accomplished people, be more circumspect and less quick to dismiss/judge others.
This is certainly not an exhaustive list — there are many other areas I hope to improve upon in 2011; Trust me when I tell you my list gets longer every year. However, it is what I have been thinking about over the past few months.
As always, ideas, suggestions, and hints for improving are always welcome!