Investing

Reasons for poor performance of Fund Managers and losers

If you click this link, you can see that all the funds have lost money in the last 3 months and over the years, their performance has been disappointing.

All fund managers are highly qualified with some basic accounting or business degrees and some are CFA, Chartered Financial Analysts. Why can’t they perform?

All fund managers would or should know FA and TA , financial and technical analysis. Why can’t they perform?

The short answer is that they need more than FA and TA to perform better.

They must know how to control their emotional thinking process and think logically. If everyone can think logically, all the listed shares will be fully valued and you cannot find any undervalued share to buy. But this is not the case.

Business sense:

To be really successful you must have some business sense. If you have this quality, you dare to buy any share that has dropped too much or too rapidly for no good reasons. Unfortunately all losers do not have the faintest clue about business.

Most investors cannot control their emotion of fear, greed, ego etc. That is why there are more losers than winners in the stock market.

I am only a civil engineer and I only have a rudimentary knowledge of FA and TA.. But I know and understand human nature and behavior. The movement of any share price does not only depend on the financial performance of the company. It depends very much on human behavior.

Human Behavior:

When there is bad or good news or rumors or hot tips, most investors over react. As a result, as the price goes down due to some bad new, most people who are fearful of losing more money would join in the selling.

In the same way when the price goes up due to some good news or hot tips, most investors who cannot control their greed, would rush in to buy believing that if they buy at high prices they can always sell at higher prices. They rush in to buy aggressively because they believe the price will go higher the next day.

As I said many a time before, no share price can continue to go up or fall down for whatever reasons. At some point in time the price movement will change trend. Most successful investors can see or feel the pivoting or turning point of the trend would start to buy or sell to maximize their profit.

The trouble is that most investors including fund managers have the herd instinct. They behave like sheep in a flock, following one another. They feel very comfortable to act together. Very few fund managers want to be different. They all want to have the same result of their performance so that their clients cannot blame them if they did not perform because all other fund managers are the same.

Financial institutional analysts frequently recommend shares after they have interviewed CEO or CFO of companies who are also eager to be interviewed. No CEO or CFO will say that their companies are not doing well or expecting challenges that they cannot overcome. They will always say that they can make more profit.

They know that selling their shares is as important if not more important than selling their products. Institutional analysts are actually helping them to sell their shares.

Institutional analysts are so naïve in believing what they hear from CEO or CFO and they usually write good reports of companies they interviewed and their financial institutions buy the shares aggressively before they publish their recommendations. In this way, they can buy the shares at cheaper prices than the public. As a result, all the funds are doing so poorly as shown on the record.

Have you ever seen any bad report by institutional analysts on any company before?

All professional analysts, especially from commercial banks, cannot write anything bad about any listed company because they are afraid of losing the huge accounts of public listed companies.

I always look at institutional analysts’ recommendations with a pinch of salt. I only buy any of them if they can comply with my share selection golden rule which is that the company must be able to make more money in this financial year than in the last financial year. When the company reports increased quarterly profit its share price will naturally go up.

Losers will always rush in to buy all the recommended shares by institutional analysts because they believe these analysts are really good.

KC Chong:

As much as I do not like to criticize or continue to argue with KC Chong, I need to response to his article which he posted on i3investor a few days ago. He purposely expressed doubt of my success in using my golden rule. Unlike financial institutional analysts who are marketing shares, KC Chong is marketing his teaching programme.

He writes like a professor of finance using all the accounting jargons he can find to impress potential buyers of his product. He frequently posts his articles on i3investor to attract more students. He even has the audacity to run me down to promote his product.

All potential buyers must insist KC Chong to show proof that he himself has made a lot of money. He must show his track record. How much money has he made in his life time from share investment?

Common sense will tell you that if KC Chong is so successful, he would not have to continue begging for more students to buy his teaching programme.

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