In my last blog, I discussed the necessary mindset and belief system of a successful money manager. In this article, I am going to be examining the skill set and track record of a successful money manager.
A couple weeks ago, I listened to the speakers at the Sky Bridge Alternatives Conference in Las Vegas talk about the demise of the hedge fund industry. Instead of dwelling on the past, I think we need to look at what is needed today to be a successful money manager regardless of asset class.
One of the things necessary to be successful is the right skill set. A successful money manager must have the following skills. He must:
1. Know how to properly interview managements according to SEC rules, evaluate strategies, managements and be cognizant of both positive and negative change as it impacts valuation and stock performance.
2. Understand and utilize risk management tools to minimize downside exposure while maintaining upside potential
Understand the psychology of consumer, corporate and governments behavioral patterns and actions.
3. Understand Soros' Theory Of Reflectivity
4. Understand that the key to compounding is to minimize losses.
5. Be empowered to make capital allocation decisions including regional emphasis. Investors must change their mindset and hire global managers by asset class who understand the intricate inter-relationships amongst all the variables. Every change, no matter how small, impacts the system.
Those are the skills necessary to be a successful manager, but don't forget to look at his track record. If you want to have your money successfully managed, the manager must:
• Earn real rates of return exceeding the market averages over market cycles.
William A. Ehrman is managing partner at Paix et Prosperite LLC.