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Stewart Cowley: it's a wonderful life

by Stewart Cowley on Jan 16, 2014 at 14:05

Tom: Two hundred and forty two dollars.

GB: No Tom, just enough to tide you over ‘til the bank reopens.

Tom: I’ll take two hundred and forty two dollars…

GB hands him the money. Ed approaches the counter.

GB: OK Ed.

Ed: Well I got three hundred dollars here George…

GB: Well what’ll it take ‘til the bank opens – what d’ya need…

Ed: Well I suppose twenty dollars…

GB: Twenty - now you’re talking. Thanks Ed…. 

And so it goes on, each person reducing the amount they want to the amount they need until the Building and Loan closes, solvent, with one dollar in reserve at 6pm.

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2 comments so far. Why not have your say?

Anonymous 1 needed this 'off the record'

Jan 16, 2014 at 16:26

I always enjoy reading Stewart's pieces and this is no different, its spot on. Market cap weighted indices and peer group league tables that contain a plethora of different strategies within the same sector are an abomination. Not only do they not match investors needs, they lead fund managers to make poor decisions. How many equity managers out there have a large position in a stock for no better reason that it being a large index constituent - my guess is it runs to the 75% mark. In the case of investment grade credit funds people were running with 50-60% in financials prior to the crash, because the index had 50%. Where was the sense in that. Precisely what the solution is I am less sure. Its easy to say needs driven investing makes sense and it certainly does but there still need to be ways of judging managers. Different benchmarks, equally weighted or style driven for example, that match what a manager is attempting may be a solution but does that just lead to greater complexity? There really should be more of a debate on this as for me it is a large elephant in the corner of the investment room. Or perhaps there shouldnt!? Herd stupidity creates the opportunity for people who can think independently and creatively to do well.

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Jan 16, 2014 at 16:53

Indices are fine if you know what the limitations are. Having them is better than the prior situation anyway, even if it's all become too sophisticated. Problem is that most people do not know what they want, and cannot measure the benefits. I have been known to say to my colleagues that our clients don't know we are price competitive, but give higher service and (generally) achieve better results than our peers. Yet, it does show up, strangely, in our persistence figures...

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