A Man Must Have a Code
March 5, 2017·0 comments·narrative
The investment industry presents itself as rigorous and strategic. Yet when asked the simplest question, how and why do you actually make money, most managers freeze. They have philosophies and processes. What they lack is a functional framework that explains their own success. This gap between credentialed confidence and actual understanding runs through the entire profession.
- Hundreds of fund managers can't explain their own returns. Over a decade of interviews revealed a consistent pattern. Most described their investment process, sector allocations, and risk management with confidence. Almost none could articulate why any of it actually generated profits.
- Manager evaluation has become ritual without substance. The industry built elaborate due diligence processes, multi-page questionnaires, and character assessments to distinguish competent managers from mediocre ones. Yet 90% of that evaluation could collapse into a single question that most managers fail to answer.
- Investment language has become interchangeable marketing copy. "Rigorous bottom-up analysis." "Longer-term perspective." "Above-average risk-adjusted returns." These phrases are so generic that nearly every fund manager recites some version of them. The specificity is illusory.
- The highest-performing firms built around something fundamentally different. They didn't start with a marketing philosophy or a label for themselves. They constructed their entire organization around a specific, measurable thesis about how markets actually behave.
- There's a sharp distinction between what managers believe and what they can articulate. A functional framework explains what actually drives returns. A stated philosophy is what a committee decided sounds professional. That gap determines how capital gets allocated and which bets get made.
The Why of Epsilon Theory
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- See through the nudges of Big Politics and Big Media.
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DISCLOSURES
This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.
Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.
