What you can do but the Fund Manager cannot…..
It is customary for the small investor to think that the Fund Manager is at a huge advantage over the common man. It is true that the FM has access to a lot of research data, investor meets, broker reports, etc. HOWEVER, there are certain things that YOU can do and the fund manager cannot:
1. It may not be sensible, but you can TACTICALLY have a dynamic portfolio of equities, cash, liquid fund, and some debt investments. A Fund Manager cannot. He has to stick to what he had said in the Prospectus.
2. You do not have to explain in too much detail what you do. The poor fund manager has to make detailed notes and explain to the Trustees, directors, and in a worst case to SEBI.
3. He has to maintain equity allocation according to the benchmark, and cannot go too much off his ‘investment philosophy’.
4. You do not have to worry about your Quarter on Quarter performance, but the media puts so much pressure on the Fund Manager, that even very senior fund managers call up saying ‘did you see my Quarterly performance’. Sad but true.
5. You can sit on cash or leverage – depending on your call at that point in time.
6. Sometimes you feel partial booking makes sense…for a FM to do that is very difficult..except of course to correct the asset allocation.
7. The fund manager HAS to ‘book profits’ and this should be enough to payout dividends. You are under no such pressure.
8. The fund manager needs to be ready for redemption requests. You do not have such pressures.
9. There are trustees who ask you ‘Why have you sold X share and bought Y share’ – you need to meet them to believe the kinda questions that get asked.
10. You can change your mind without having to give a 5 page explanation to a bunch of jokers above you.
11. You need not worry about what people will think about you.
12. You can buy without having to do a ‘stress’ test, or a Trustee asking you ‘in a midcap like this with such a high impact cost will you be able to sell 50,000 shares without impacting the price much?’
10. If you think the above are not sufficient you need to deal with the Regulator SEBI, and worse YOUR own internal Compliance guys, clients, banks, IFAs, – these buildings are normally worse than the AGM of your building society….
God bless.
Anshuk Jain
Some of the points remind you of Prashanth Jain trying to steer the mammoth HDFC Top 200 🙂
Chandra Singh
Hi Subra,
I am a silent admirer of your posts. Only today I got the time to write. In addition to what you wrote, one can plan for whatever money he will be getting in future, thus taking bold calls, average down, sit on losses etc but a fund manager cannot predict when investors will pump in fresh money.
When markets are expensive and paradoxically more investments are made, he is forced to sit on cash which dilutes the overall returns but individual investors can plan other expenses / investments to be completed in an inflated market and not be impacted by additional inflows.
Sid
Peter Lynch has written in his books how the small investor can take advantage of the restrictions placed on the fund manager.
For example: If even one stock gives us say 10x the portfolio returns will be immense.
Sid
Peter Lynch has written in his books how the small investor can take advantage of the restrictions placed on the fund manager.
For example: If even one stock gives us say 10x the portfolio returns will be immense but for a fund manager who can only put 5% in single stock it won’t make much of a difference.