Page 554 - How to Make Money in Stocks Trilogy

Institutional Portfolio Ideas 421

of this period, the bottom 20% of managers in performance should be
replaced. Thereafter, every year or two, the bottom 5% or 10% over the
most recent three- or four-year period should be dropped. This avoids
hasty decisions based on disappointing performance over a few short quar-
ters or a year. Given time, this process will lead to an outstanding group of
proven money managers. Because this is a sound, longer-term, self-cor-
recting system, it should stay that way. Then it won’t be necessary to pay as
many consultants to recommend changes in personnel.
In selection of managers, consideration should be given to their latest
three- to five-year performance statistics as well as to a more recent period.
Diversification among the types, styles, and locations of managers should be
considered. The search should be widespread and not necessarily limited to
one consultant’s narrow, captive universe or stable of managers.
The corporate or pension fund client with money to be managed also has
to be careful not to interfere at critical junctures—deciding, for example,
when a greater proportion of the portfolios should be either in stocks or in
bonds or that undervalued stocks should be emphasized.
Cities and counties that have funds to invest must be extremely careful.
Few of their personnel are highly experienced in the investment field. These
inexperienced people can easily be talked into investing in bonds that are pro-
moted as being safe but that later cause enormous losses. This happened, of
course, in 2008 with AAA subprime loans in real estate mortgage packages.
Clients can also interfere by directing where commissions should go or
insisting that executions be given to whomever does them most cheaply.
The latter, while a well-meaning attempt to save money, commonly results
in forcing upon a money manager someone who provides either poorer exe-
cutions or no research input of real value. This handicap costs the portfolio
money, as it pays ½ point or more (or its decimal equivalents) on trades that
are executed by less expert people.

Daily Graphs Online becomes MarketSmith ®
In 1973, a friend suggested that we produce a weekly chart book to help
retail investors find growth stocks with CAN SLIM characteristics. Our
®
weekly Daily Graphs books were a tremendous success because they
helped investors cull through thousands of potential investments quickly
and efficiently. We still print them, but in 1998 Daily Graphs moved online
with applications such as Charting, Custom Screens, Industry Groups,
Option Guide, and Mutual Fund Center.
In early 2010, Daily Graphs Online will again transform itself into
Market Smith. MarketSmith graphs stay true to the original Daily Graphs