In the world of professional investing, the position most sought for that very few obtain is that of portfolio manager. It is the position that offers the successful manager fame and fortune beyond their wildest dreams. It is also the position with the greatest failure rate in the industry. After all, a portfolio manager is the individual that ultimately makes each decision towards the construction and implementation of a portfolio, and is held accountable for every action taken, good or bad.
Most of you have taken on this job. At first glance, you may not think so, but remember the job description; a portfolio manager is that person who makes the decisions as to the construction and implementation of a portfolio. Those of you who self-manage your investments can understand this concept easily. Those of you who choose to work with a financial advisor may have a more difficult time. If your advisor calls you and asks you to sell one mutual fund or ETF and buy another, he or she is acting not as a portfolio manager, but as a salesman or research assistant. You, the person making the decision, have become the portfolio manager.
To be successful as a portfolio manager you must, and I repeat, you must come to grips with a basic belief system as to what drives performance and then make your decisions accordingly. Professional managers that have reached the pinnacle of success learned this in the first year they assumed the job. For an equity manager, this means that they believe the majority of their portfolio returns are gained only from the market, i.e., that a rising tide lifts all ships. Or they believe their returns have little to do with the market and everything to do with the individual stocks that are owned.
This basic belief drives their research, it drives their portfolio and it drives their returns. If you believe that the market drives returns, then why would you buy an individual common stock or actively managed mutual fund when an index fund is available? If you believe that wealth is created by owning a business, then why would you ever consider an index fund?
If you are not sure of your own beliefs then let me help you by making a suggestion. Every quarter most mutual fund managers will write a letter specific to their fund. You should read as many of these letters as you can. Most will reflect on the past performance of the fund, but it is the discussion of what they believe the future holds that you should pay the most attention to. If the discussion is based more on the economy, the general level of stock prices, hedging, asset allocation or industry groups then the manager is more market oriented. If the discussion is more about the individual holdings within the portfolio, then the manager is more inclined to believe that wealth is created by individual business independent of the market. After reading enough of these letters, you will find yourself agreeing with one more than the other, isolating your own belief.
Without a basic belief in what drives returns you will quickly join the ranks of failed portfolio managers. Having a basic belief will allow you to concentrate your research on the market or individual holdings. It will give you the strength to make a decision during difficult times based on that research. It will allow you to take profits, or add to your portfolio without fear and will allow you to learn from your mistakes. If you choose to hire a professional manager, as many do, it will guide you in finding a manager who believes as you do and will be a far more rewarding and profitable relationship. Most importantly, it will minimize the stress involved with investing, allowing you to capture more of the returns our capital markets provide.
Anderson Griggs & Company, Inc., doing business as Anderson Griggs Portfolio Management is a registered investment adviser with the US Securities & Exchange Commission. Pursuant to laws and regulations Anderson Griggs also maintains notice filing with several individuals state regulators including North and South Carolina. Anderson Griggs only conducts business in states and locations where it is properly registered or meets state requirements for advisors. This commentary is for information purposes only and is not an offer of investment advice. We will only render advice after we deliver our Form ADV Part II to a client in an authorized jurisdiction and receive a properly executed investment Management Agreement. Any reference to performance is historical in nature and no assumption about future performance should be made based on the past performance of any Anderson Griggs Investment Objective, individual account, or index. The authors of publication are expressing general opinions and commentary. They are not attempting to provide legal, accounting, or specific advice to any individual concerning their personal situation. Anderson Griggs Portfolio Management's office is located at 113 E. Main St., Suite 310, Rock Hill, SC 29730. The local phone number is 803-324-5044 and nationally can be reached via its toll-free number 800-254-0874.