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Beware the “star” manager shining brightly

Bruce Wilson is MD at Helm Godfrey, a firm of ultra high net worth advisors.

For many private investors it would seem that the idea of having money invested in the very top performing funds is what it is all about – chasing performance, continually looking for this year's "star" manager, usually based on last year's performance.

I have to say that some areas of the media do not help but to be fair to those people and personalities, these managers make the most interesting stories, so it is easy to see why it happens and why so much time and space is given to these so-called star managers.
The truth of the matter is that there are actually very few genuine stars in the fund management world. While this is something that has been apparent to me, and many others, for a long time, it tends to only really hit home to the majority of investors when equity markets fall and they see what effect it is has on the value of their portfolios.

Granted you get managers who have a good run, outperforming their peers for long enough to start appearing in adverts, but the ones who can actually deliver year-in, year-out over a sustained period – and in varying market conditions – are very few and far between.

I'd put money on the fact that those few who do warrant star status pay little attention to what their peers are doing and how they are performing. Their focus will be on strictly adhering to a process that they are confident will meet the targets they have set themselves and their funds.

The fact that they consistently outperform the competition will not come as a surprise to them but will simply be seen as a by-product of a rigorous process and their discipline in being able to stick to it.

The point I am trying to make with the above, just in case you hadn't worked it out, is that investing in equities should not be about chasing performance.  In my experience, those that go down this route haven't really thought about what they are trying to achieve and as a result usually end up disappointed. To me it is about setting realistic targets and then finding the most effective and appropriate way of achieving them.

The real point of this piece is that the same applies to the whole financial planning process. The secret to what I would call financial satisfaction, and to some degree even happiness, is being prepared to put sufficient time and effort into discovering what is most important in life so that an effective plan can be put in place. In all the years I have been doing this with clients, chasing fund performance has never made the shortlist. 

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