ECM round-up: The seven deadly sins (of fund managers)
James Montier of Dresdner Kleinwort Wasserstein, investors’ favourite equity strategist as ranked by the Thomson Extel Survey, has identified seven common mistakes in the investment process of fund managers everywhere. His analysis challenges some of the most deeply held beliefs.
The seven deadly sins, according to Montier, are:
1 Placing forecasting at the heart of the investment process. Most investors are hopeless at forecasting so should not make it an integral part of their investment process.
2 Being obsessed with information. Rather than trying to study all the information available and becoming experts on nothing, investors should focus on a few really important factors, such as valuations and earnings quality. More information tends to create over-confidence rather than improving decision-making.
3 Company management meetings. A waste of time, as psychologically we aren’t good at looking for information that proves us wrong and we aren’t good at spotting lies. So what’s the point?
4 Trying to beat the gun. Investors spend a lot of time trying to time their purchases and sales to come as close to the bottom and top of the market as they can. Few succeed.
5 Short time horizons.