Hands off!
On Bloomberg Radio, Barry Ritholtz chatted with James O’Shaughnessy of O’Shaughnessy Asset Management. You might know James O’Shaughnessy; he wrote the multi-variable stock selection guide book called What Works on Wall Street.
The interview challenges the bedrock of our beliefs when it comes to investing; that we add value. More specifically the interview challenges the ideas that smarter people make better investment decisions.
Here’s an excerpt:
O’Shaughnessy: “Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was…”
Ritholtz: “They were dead.”
O’Shaughnessy: “…No, that’s close though! They were the accounts people who forgot they had an account at Fidelity.”
Ritholtz also follows with some of his experiences in estate planning, where a family fighting over some inherited assets might not touch them for say, 10 or 20 years while they work out the problem, and later find that those 10 or 20 years are the best period of performance.
We reckon the ‘hands-off’ approach makes a lot of sense. Billionaire oilman J. Paul Getty famously advised: “Buy when everyone is selling and hold until everyone is buying”. He was onto something.
You can download the podcast of the interview here.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Andrew Legget
:
Firstly, I believe that the best investment strategy is not trying to be to clever and buying low and selling high. I know it is a cliche but it works and you don’t need to have a phd to understand how to do that.
Recently needed to make some changes to super as it was being rolled into a new fund. My advice to the staff member was to put me in the “growth” index fund. Not because I believe in efficient markets, but because I believe that paying high fees out of my super to people who are forced to use their 5th and 6th best ideas, which will look a lot like the market anyway, is a poor use of my capital. Especially considering that by the time I get around to being able to use it who knows what it will look like.
I think that your fund, roger is a good example of what can happen with looser mandates in regards to capital allocation. If this was more widespread I dare say that certain research about active fund underachievement might start disappearing.
I think the best strategy is to keep it simple. So it methodically, do it based on information and not emotion. Just do it smart. The minute we try to get too clever the universe has a way of making a fool out of ourselves.
Steve
:
An interesting example to use, Roger! Considering….
You said, “We reckon the ‘hands-off’ approach makes a lot of sense…”
Seemingly forgetting that you’d just said, “The interview challenges the bedrock of our beliefs when it comes to investing; that we add value.” I’ve never known a fund manager (apart from your index type funds, including the ‘smart beta’ variety – but that’s deliberate in their case) admit to that! Unless they’re a systematic fund.
I would have thought that you guys would think you add ‘value’ (call it alpha for the geeks) above a value factor (‘beta’ – again, for the geeks?)
Jim only ever advocates a systematic approach.
Is the Montgomery a quantitative (geek)…..ie. systematic fund? Or discretionary? I had assumed the latter. Genuinely interested as I may have assumed wrong!
Roger Montgomery
:
Hands off means not trying to be too clever about timing.