|
It is easy to be brave
from a safe distance
Aesop |
I would be less than
honest if I stated that it is easy being a portfolio
manager. The fact is: it is not. Portfolio managers operate
in a 24-7, fast-paced, constantly changing marketplace where
supposedly intelligent and lucid investment decisions in the
morning can sometimes look rather featherbrained in the
afternoon. Furthermore, unlike many other professions, our
work is constantly scrutinized and second-guessed by
armchair quarterbacks since we receive a daily report card
of stock prices in the popular newspapers for all to see.
As fundamental
analysts we try to thoroughly analyze common stocks. We
examine pre-screened companies in great depth, establish
disciplined buy/sell targets and set about a plan of action
to purchase a meaningful position. Given our collective
information and analysis we do the very best we can.
In theory this
strategy looks quite simple: analyze, buy the most promising
stocks and then sell at a huge profit. Unfortunately,
investment management is never as easy as it looks. Ask the
many individuals who in 1999/2000 decided that the high tech
boom was a veritable horn of plenty and that great gobs of
money could be made by simply buying the tech stocks and
flipping the innumerable initial public offerings. It may
have worked for a short period but these neophytes were soon
to become very disappointed. The fact is that if it was so
easy everyone would be doing this and we wouldn’t need MBAs
and CFAs to carry out investment research.
When we describe our
disciplined and patient investment style to prospective
clients we explain that we make a great effort to thoroughly
analyze our common share selections. But, in some cases, the
waiting period for a stock to reach our price target can be
quite long and painful. A stock may languish for months
until, suddenly, a catalyst such as a merger, takeover or a
privatization may occur and the stock price then rockets
upward. Instantly our clients think that we are geniuses
without considering that we may have suffered through months
of agony, criticism and client second-guessing.
To reiterate, we are
doing the very best we can as we shepherd a portfolio of 30
to 40 common stocks toward first quartile investment
performance. At the same time we grapple under close combat
conditions in a dynamic marketplace fraught with price
volatility combined with intermittent political, economic
and financial shocks. But through our continuing efforts,
tenacity and investment passion we steer toward our common
goal of financial excellence. This enduring passion keeps us
focused and constantly motivated as we carefully navigate
through countless investment anomalies, as well as real and
bogus opportunities.
Irwin A. Michael, CFA
