Page 22 - Cedarville Magazine Spring 2013 Volume 1 Issue 1
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Cedarville Magazine
HOW TO
CHOOSE
MONEY
MANAGER
A
Managing Your Money Manager
Don’t take a hands-off approach to your
portfolio. And don’t let your money
management team off the hook with an
annual statement comparing returns to
market indexes or other money managers.
The bottom line is, you
are responsible for
your investments
.
Communicate your financial goals, risk
comfort level, and preferred strategy to
your moneymanagers. Make sure you’re
on the same page before committing to
any investment changes.
At least once a quarter, check
your investments’ performance.
If concerned, talk with your managers
and compare their decisions with the
investing strategy you have in place.
Make sure your philosophy is
being maintained and your investments
are producing the results you planned
for, even if it means changing managers.
Some investors check performance so often
they drive themselves to distraction because
of the volatility of the market. Remember:
the point of having a solid investment
philosophy and strategy is to let you and
your investment teammanage your money,
not let your money manage you.
Barry James
is President and CEO of James
Investment Research, Inc., in Alpha, Ohio.
This article is an excerpt from his 2012 book,
7 Timeless Principles of Investing
, and is
reprinted with permission. You may view a video
of his American Dream Conference remarks
at
cedarville.edu/americandream
.
You’ve searched for financial managers online. You’ve read
magazines and compared recommendations from national groups.
You’ve talked with your family, friends, and colleagues. You’ve
narrowed the list of financial advisors to those with the right balance
of solid performance and personal attention. Now, how can you
tell if your soon-to-be partners in protecting your bright financial
future are trustworthy?
Simple: find out how they rate on “the four P’s” — philosophy,
process, people, and performance.
Philosophy:
This forms the basis of all investment decisions.
What is their philosophy of investing? Does it match
yours? Just like a marriage, if it doesn’t fit, it will fail.
Does it make sense? Is it logical? Or is it complex and
hard to follow?
Can you stay with this philosophy a minimum of five years?
Process:
If the decision-making and implementation process for
putting the philosophy into action isn’t well thought out, the firm
may have problems.
Does the process fit the company’s philosophy?
Does it make sense, or is it too complex to follow?
Can it be implemented on a repeated basis, producing
consistent results?
People:
Look for a company that brings experience, background,
success, and ethics to the table.
Do they inspire confidence and trust? Do they have a
passion for the work?
Do they invest in their own funds?
What kind of stability exists in the work force?
How does the company keep its top people?
Are there any legal or ethical issues with the people or firm?
Performance:
Look at how the company has followed its
philosophy and process over time. Avoid those who change
with the latest trends in the market.
Are the numbers reasonable? Are they constructed
from just one account or from a group of accounts?
Are the numbers audited?
Can you verify the money manager’s claims of
performance using public records, including
records of the funds they manage?
Do they provide explanations of better- or
worse-than-expected returns?
by Barry James, CFA, CIC
