Seven Sins Of (Investment) Fund Management

Here is another great work by James Montier on behavioral finance and the sins committed by investment managers. This is a must read for both active and passive investors. Click Here To Skip The Introduction And Read Full Article On the Seven Sins Of Investment Management

Article Introduction (Via James Montier and DrKw)

How can behavioural finance inform the investment process? We have taken a hypothetical ‘typical’ large fund management house and analysed their process. This collection of notes tries to explore some of the areas in which understanding psychology could radically alter the way they structure their businesses. The results may challenge some of your most deeply held beliefs.

Over the last year or so we have produced a series of notes that have sought to provide an ‘outside’ perspective on the fund management industry. The driving force behind these notes is that whenever I present on behavioural finance to those in the industry the most frequent response I get is “That it is all very interesting but how do I apply it”. This note is my attempt to take some of the basic biases and then demonstrate just where they might crop up. Having been privy to a great many clients and their processes over the last twelve years or so, I decided to create a composite ‘typical’ large fund management house. As I thought about the various aspects of this firm’s investment process, so I began to see the areas where behavioural biases may reach their zenith. These became the seven sins of fund management.

Article Summary (Via James Montier &DrKW)

The Seven Sins Of Fund Management Are:

1. Forecasting

2. The Illusion Of Knowledge

3. Meeting Companies

4. Thinking You Can Out Smart Everyone Else

5. Short Time Horizons and Over Trading

6. Believing Everything You Read

7. Group Decisions

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