WHAT MAKES FOR GOOD AND BAD INVESTMENT PERFORMANCE? CAPTAIN OBVIOUS AGAIN AT YOUR SERVICE

7/12/13

Today’s (i.e., Friday, 7/12/13, page C4 “For Fund Managers, A Bruising Quarter,” by Min Zeng) Wall Street Journal outlined the poor second quarter performance of some of the nation’s premier bond funds managers in the face of rapidly rising interest rates.  The most salient examples in the article were

                                                                                    Loss    

Manager                       Fund                            Loss     Benchmark       Benchmark

Bill Gross                     Pimco Total Return       -3.6%      -2.3%          Barlcays US Agg

Dan Fuss                      Loomis Sayles Bond     -1.4%      -2.5%          Barclays  US Govt

Jeff Gundlach                Doubleline Tot Ret        -1.6%      -2.3%          Barclays US Agg

Michael Hassenstab      Templeton Global Bd    -2.8%      -3.0%          Citigroup World Govt

Hmm…

A former professional investor like yours truly might object to the Journal’s characterization of these gentlemen’s performance.   Other than Mr. Gross, all three managers beat their benchmarks, in two cases quite handily.  Thus, in the world of professional investing, we would consider the second quarter to be a successful one for Messrs. Fuss, Gundlach, and Hassenstab.

However…

What professional investors and the consultants who hire them don’t seem to understand is that the individual investor and, if s/he is honest, the typical institutional investor, DOESN’T LIKE TO LOSE MONEY.  PERIOD.  While the typical investor is an understanding sort, s/he has limits on his or her understanding, and they are quite tight limits.   Typically, s/he doesn’t give a rat’s hindquarters how his or her money has done relative to some index that s/he doesn’t understand or thinks is rigged.  S/he wants to make money, or at least avoiding losing money, under all circumstances.  It’s amazing that professional investors have such a hard time understanding this.

If you don’t think this is true, consider these two discussions with someone whose portfolio you help manage:

Scenario 1:

“You made 8% last year, but the market (however defined) was up 11%”

Scenario 2:

“You lost 8% last year, but take heart;  the market lost 11%”

If you somehow think that your consultee, friend, client, etc. would be happier with the second report, you have to get out of the office and talk to some  real investors.