Mar 13, 2022
Mental Models discussed in this podcast:
- Opportunity Cost
- Alpha
- Superpower of Incentives
- Competitive Advantages
- Process vs Results
Please review and rate the podcast
If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience.
Follow me on Twitter and YouTube
Twitter Handle: @TreyHenninger
YouTube Channel: DIY Investing
Show Outline
Key Concepts for selecting a Portfolio Manager
- Choosing an investment manager is a lot like
choosing a stock
- Don’t invest in anything you don’t understand - this includes managers
- What is their process?
- How do they earn alpha? Do you need alpha?
- What are your financial needs?
- Wealth preservation?
- Wealth Growth?
- Do you need alpha?
- Not every manager can provide alpha.
- Not every manager seeks alpha
- Not every investors NEEDS alpha
- Value
- Cost - How are they paid? What is the expense structure? How does it compare to alternatives?
- Management Fees
- Performance Fees
- Next podcast will be a whole podcast on fee structure, so I’ll limit my discussion on it here.
- Growth
- Investment managers inherently benefit from
growing AUM. This is unavoidable. Regardless of pay structure.
However, you want to understand what drives them. Is investing a
passion or a money seeking endeavor?
- Are they trying to grow AUM?
- Do they plan to shut down growth at some point?
- Investment managers inherently benefit from
growing AUM. This is unavoidable. Regardless of pay structure.
However, you want to understand what drives them. Is investing a
passion or a money seeking endeavor?
- Quality
- Competitive advantages?
- How are they different from other investors?
- Communication?
- How do they communicate with clients?
- Do you understand their process? Are you comfortable with them?
- Style
- Size of stocks
- Liquidity
- Value vs Growth vs Quality?
- Overlooked companies?
- Index hugging?
- Concentration vs Diversification
- Competitive advantages?
- Custom Portfolios vs Investment
Fund
- Some managers will setup a customized portfolio just for you
- Or do you simply want to own a portion of a mutual fund or hedge fund.
- Past Performance - Luck vs Skill
- It is difficult to analyze a portfolio manager based on past performance
- Instead, focus on their process.
- If you understand their process you can potentially understand the odds of future outperformance (if you even need outperformance)
Summary:
Choosing an external investment manager for your wealth is a difficult decision. In this episode, I outline the key concepts you should consider when evaluating someone to be your personal portfolio manager.