‘Disciplined, Patient and Unemotional’: the Perfect Fund Manager

(April 2, 2012)  —  Successful fund managers can often be more easily identified by their characteristics than through their performance, investment consulting firm Towers Watson has said.

An ability to learn from mistakes and great self-belief are some of the characteristics needed for a fund manager to be successful in the long term, Towers Watson has told investors in the latest edition of Global Investment Matters.

Craig Baker, Global Head of Investment Research at Towers Watson, said: “History shows that luminaries such as Warren Buffett and Peter Lynch have very different investment strategies. However, they are united in their disciplined, patient and unemotional approach to investing. Emotions such as fear and greed make it impossible to navigate an ever-changing market environment and build long-term wealth.”

Baker said successful investors understand that crises and uncertainty will inevitably rock markets but instead of making drastic changes to their investment plans they keep a cool head and better position themselves to benefit from long-term growth.

Towers Watson asserted that selecting investment managers is made difficult because it is possible that a genuinely skilled manager may generate poor returns for an uncomfortably long time before their skill manifests itself again.  The firm also said it is also probable that an unskilled manager may produce positive returns for multi-year periods. 

Baker said that qualities to look for in a fund manager included: a passion for investing; great self-belief, balanced with cynicism and self-doubt; a fierce intellect, a competitive nature; and a clear investment philosophy.

“Getting inside the minds and hearts of managers requires understanding of the investment drivers and key issues for reaching investment decisions on selected investments. This requires detailed examination of the investments within the portfolio for any obvious inconsistencies with the process or investments which appear to contradict the process,” Baker said.

He added that investors should recognise that mistakes are an inevitable consequence of taking risk where uncertainty exists and the identification of these mistakes in a portfolio, in the context of broader understanding of an investment manager, can be very helpful in determining the presence of genuine skill.