Harried Fund Manager Visits the Oracle of Excuses:
quote.bloomberg.com
Chet Currier
By Chet Currier
New York, Aug. 21 (Bloomberg) -- Deep in the bear-market forest, a youthful
mutual fund manager comes to consult the Oracle of Excuses and
Explanations.
``I'm in a tight spot, and you've got to help me,'' the manager pleads, wringing
her hands. ``My portfolio is down 39 percent in the past year and 54 percent
since March 2000. Whatever shall I say to my shareholders and my boss?''
The oracle replies, ``You are not the first to ask me this. Lately they've been
showing up here five and six a day. Everybody in such a hurry. Wish I could
figure out what's the rush.''
The oracle pauses as if gathering his thoughts, then resumes. ``Let's get down
to business. I cannot tell you the exact words to use. Explaining and
excuse-making are among the most difficult of the rhetorical arts. I can,
however, offer some suggestions.
``You are familiar with the sage admonition, `never complain, never explain.'
One of the best ways to minimize trouble in any situation is to zip one's lip.''
The manager gives an impatient nod.
``In this case, I realize, keeping mum is not an option. The investment
committee will insist on hearing from you. Semiannual and annual reports
must be written.
Straight Talk
``So how do you proceed? It is best to be candid and humble. The most
revered of all investors, Warren Buffett of Berkshire Hathaway Inc.,
consistently demonstrates these attributes. Perhaps you read his comment
for 1995: `This was a year in which any fool could make a bundle in the stock
market. And we did.'' A few years later, he began his letter, `The numbers on
the facing page show just how poor our 1999 record was.'''
At this the manager speaks up. ``With all due respect,'' she says, ``Mr. Buffett
has the luxury of plain speaking, since his reputation as an investor is
established for all time. Mine is not.'' The oracle chuckles sympathetically.
``You are wise for one so young,'' he says. ``Shall I mention a few lines NOT to
use? Here's an especially weak one: `Investors are overreacting, causing our
stocks to decline far more than economic conditions warrant.' This is like
blaming the ocean when a boat sinks.
``Another lame attempt you see all the time is, `We are experiencing
unprecedented volatility.' So what? Of course investors overreact, and stock
prices sometimes take wild swings. It is these extremes that a manager is
paid to exploit.''
``Thank you, oracle,'' the manager says. ``You have saved me from trying
either of those dodges. Any others?''
Pure Baloney
``A few more,'' the oracle replies. ``Avoid at all costs anything in the nature of
`we lost a lot of money but we kept our style pure.' That is equivalent to telling
a schoolteacher, `Sure, I flunked the exam -- but I used the proper No. 2 pencil
to mark my answers.' While some investors demand consistency of style --
large-capitalization growth, small-cap value, or whatever -- style purity is not,
and never will be, the purpose of the endeavor.
``Be careful, too, about putting too much emphasis on comparisons to a
market index or a peer-group average. I know, it is a meaningful achievement
to lose less than most of your competitors in a bear market. Smart investors
will see that as good cause for sticking with you.
``But the information that a fund has dropped `only' 54 percent while the index
is down 63 percent has its limits. It won't help people pay their bills.''
The oracle sighs. ``Whatever you do, avoid apologies. Apologies are very
popular nowadays, and the more of them you hear the emptier they sound.
Worst of all is to claim that you `sincerely apologize.' You cannot assert
sincerity any more than you can boast of modesty.
``By all means, do remind everybody that you have lost some of your own
money as the fund's net asset value per share has declined. Investors like to
know that their manager has a personal stake. Also, they may be less eager
to punish you if they see you have already suffered along with them.''
``I sense that my audience with you is coming to an end,'' the manager says.
``Thank you for your wise counsel.''
``My pleasure,'' the oracle replies. ``Unlike managing money, giving free advice
is no trouble at all.'' |
