Interesting article at Marketwatch advising you how to spot a Fund Manager that is not being forthcoming as to his performance.

According to Chuck Jaffe, too many fund managers "get it wrong when they get things wrong." If their money-management mistakes lead to poor excuses, or indifference, oroverreactions — then you may have a bigger problem than an underperfomring fund — you have a bum manager.

Folks like Bill Miller and Warren Buffett know they can talk
frankly about stretches of bad performance without losing the respect of
investors. They know that
investors won’t flee their funds because of a poor stretch.

Jaffe observes that "not every manager has that kind of tenure, record or self-confidence." He outlines some clues to look for to see if your fun dmanager is "coming clean or covering up."

Beware the following five phrases:

1. ‘It’s a challenging market right now’
(variation:  "It’s a stockpicker’s market")

Duh. Investing is always challenging, even when the market is booming. You buy a fund for the
manager’s expertise. A manager who
blames the stock market effectively is telling you that "It’s not a good time to
be relying on luck."

2. ‘We underestimated the risk …’

The manager’s job is to take manage risk appropriately.
Better to invest in a way that is consistent with the fund’s
long-term mission than to fail to properly consider risk — and blow up taking too
many big chances.

3. ‘We’re cautiously optimistic …’
The most overused phrase in the fund manager lexicon  — and it is essentially, meaningless. All fund managers are cautiously optimistic; it’s
the nature of the beast. No Managers say they
expect to lose a fortune; No corporate lawyer will let them say they
expect to make a fortune.

4. ‘The long view of our performance shows …’
The quarterly letter is really designed to talk about recent
results and future prospects. Managers should acknowledge when they’re
struggling, not gloss over it.

5. ‘We’re taking steps to improve returns’
This is another statement that managers should make regardless of
market conditions or recent performance. It’s also a
warning sign: look
closely to see if the fund is engaging in "Style Drift."

Interesting set of rules — good stuff, Chuck.


Loser lips:  Five phrases that signal a fund manager is covering up
Chuck Jaffe
MarketWatch, 6:32 PM ET Aug 6, 2006

Category: Corporate Management, Investing, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

7 Responses to “Five phrases that signal a fund manager is covering up”

  1. 6. “We’ve recently paired back our domestic exposure.”
    7. “We expect some more short-term volitility”
    8. “We still believe that Large Caps will be the place to be and that small caps will stop outperforming.”

  2. Robert Cote says:

    9. “However, we now find ourselves strategically positioned to…”
    10. “With the new reporting procedures in place…”
    11. “With compensation no longer tied directly to performance out managers will be free to pursue optimum…”
    12. “These results are not expected to materially impact long term performance.”

  3. Jason says:

    I’d say that the variation on #1 is the most overused by far.

    It’s the only phrase that makes me angry enough to be glad that these people are on the other side of the idiot box.

  4. brion says:

    #6. We’re moving our offices to Nassau…

  5. ari5000 says:

    When you’re really underperforming:

    #25 “We take a contrarian approach… ”

    Ah yes, when others make money, we say, “Fuck that shit. We’re not about to follow the crowd off THAT ledge… ”

  6. wcw says:

    ..and when you’re getting creamed so hard you should really just shutter your fund and distribute what’s left:

    #0: “What gold bars?

    (Click through for an entertaining SEC enforcement action. Well, not entertaining to the investors involved.)