Saturday, November 19, 2011

It's Not Rocket Science: Part I

Tom Bradley is a founder of Steadyhand, a different kind of mutual fund company that focuses on low-fee, low-turnover portfolios where managers are encouraged to seek value wherever it can be found. Bradley summarizes his thoughts on how to beat the market in his book It's Not Rocket Science, summarized below

Successful investing requires discipline, according to Bradley. But to their detriment, most investors are looking for fast, immediate returns.

Bradley draws a lot of parallels between exercising and investing in the way people focus too much on the short-term. In both areas, people carry unrealistic expectations, try to do too much too soon, and subject themselves to a lot of hot fads that are popular, believing there are short-cuts to achieving their goals. Enough emphasis is not placed upon what Bradley believes to be the three keys to success: discipline, patience and courage.

When evaluating portfolio managers, Bradley spends a lot of time evaluating their temperaments. Does the manager stick to his strategy in the face of noise and short-term underperformance? Is he able to buy when others are panicking and sell when others are euphoric? Is the investment process still being followed? For example, is the manager still going bottom-up, or are his analyses being trumped by macroeconomic events?

Bradley also advises against market timing: it doesn't work.

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