Investing With the Best : What to Look for, What to Look Out for in Your Search for a Superior Investment Manager

Claude N. Rosenberg

1 Great Insider Information
If you have no clue how to select someone to handle your money well this is a good book to turn to for advice. It also provides advice on investing by yourself but it strongest in helping the reader find the right fit with a professional.

2 Relationship investing is a poor substitute for performance.
Relationship investing sounds good, its based on fellings, comfort and a sense of security that may (or may not) be justified. Its closely related to selling fear as the basis for an investment program. "Its dangerous out there, you need help and I'm the guy who provides the security blanket that you and your family need. I'm your investment doctor, I'll bring the ship home. I won't let you down, I'm your best friend and I really care about Margret and Billy." This "feel-good" philosophy works for some. And for the investment manager, the only way he keeps score is based on the total dollars under management or what he does for himself. People don't fire their "best friends" no matter how bad the results. Performance is an issue that relationship managers avoid and in this way they turn the relationship upside down: their interests are placed ahead of the client's.

Performance, however, is the only thing that really counts. Mutual funds get measured every day and the performance results are made public via a number of sources. Ranking versus a peer group and/or the market makes the investment process transparent, there is no place to hide. Reaching goals and objectives are brought out into the open for analysis. Like any other business, good managers get rewarded, the others are fired. In contrast, back-slapping, brandy sipping, cigar smoke cluttered, class-ring, closed-door meetings puts the investment process under the fog of feel-good. Its a trust department investment style right out of the 1940s. How well do these class-tie managers build wealth in a market that provides 10% annualy and seldom produces two down years in a row? Long -term investors are always winners but relationship managers can't admit that. How well have these guys done in the second-half of the 1990s when average annual gains were extraordinary? Don't bother to ask, they won't provide the performance numbers. That's because they got beaten severely by a simple S&P 500 index fund with a miniscule management fee compared to their outsized "relationship" fees. Relationship managers don't care about performance because they sold fear and low expectations to their clints who are typically satisified, even very happy, with not losing money even if only over a relatively short period of time. This is a winning program for the manager and a losing program for the investor.

Bring my investment results out into the open where I can analyze how the manager is doing and keep his feet to the fire. If he does well, then he becomes my family's best friend. If not, then I'll change managers as quickly as I would quit a lousy doctor or incompetent auto mechanic. Managing money is a business, not a tea-party social event. I pay for results, I don't (over)pay for friendships or relationships...I never mix my goals and objectives.