by Tom Bradley
On October 27th, I had the honour of being inducted into the Investment Industry of Canada’s Hall of Fame. I know what you’re thinking – doesn’t he need to be retired for five years before that can happen? Well, this isn’t the Basketball Hall of Fame (my lifelong dream) and I’m not finished yet. The investment industry does it differently.
At the dinner, my wife Lori and I hosted a wonderful group of people who have been important to me throughout my career. They included family, friends, Bay Street ‘Luminaries’ (as one of our guests described them) and some of our Steadyhand team.
As part of the induction, I got a chance to get up on my well-worn soap box. It was a joy to be able to talk about my roots and give credit where credit is due. And I couldn’t resist talking about what I care most deeply about, which is captured in the excerpt below. (For those who are interested, here’s a link to the whole 10 minutes.)
I don’t know what the nominating committee saw in me. I’ve done many things at a high level for almost 40 years, but I hope part of it was what I’ve dedicated the last 15 years of my working life to. Let me we explain.
I’m speaking to a room full of talented investment professionals. We’re trained to look for inefficiencies in the market that we can take advantage of — overlooked stocks, structural dislocations, or underappreciated trends. Well, one of the biggest inefficiencies in our industry, by far, is investor behaviour. And when I say ‘inefficiency’, I mean the biggest cause of slippage to client returns.
Providing great investment management is important. Charging reasonable fees is a given. But it all goes for naught if the ultimate consumer uses our products and skills incorrectly.
The penny dropped for me when I saw a study of returns for clients of an eminent U.S. money manager. The firm had an excellent record and at one point was named ‘Investment Manager of the Decade’. But the study showed that the clients of the firm hadn’t done nearly as well. Indeed, they’d done poorly.
Why you ask? Well, money flooded into the firm when results were good (and valuations were stretched) and flowed out just as quickly when they were bad (and opportunities were plentiful).
When studying history, we can always find similarities between previous market cycles, but there are more differences. What is consistent through all the cycles is the part that human emotions and behaviours play. What investors do with the portfolios and products we create is the biggest swing factor and yet it has been ignored by many of my more talented contemporaries.
This has been my sandbox — the area where we can have the biggest impact on the outcomes of our clients and other investors.
I, and many others, implore investors to take care of the things they can control. Having an appropriate asset mix. Keeping costs down. Sticking to the plan.
But we, the professionals, can also do a better job of taking care of our controllables. We can’t know what the market is going to do, but we can make sure our processes and client interactions reinforce sound investor behaviour.
That means not portraying ourselves as knowing more than we do. In other words, stop making market forecasts (which is an unfortunate occupational hazard and the biggest waste of grey matter I know). Stop promoting frequent trading. Provide clear reporting that tells clients what they need to know. And align promotion, product launches and growth strategies with what our portfolio managers are doing, not what clients are feeling. The slippage I mentioned comes when we push a safe product when our portfolio managers are doing the exact opposite … buying stocks on weakness.
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