BOOK REVIEW: The Art of Execution
The author manages multi-asset funds at Old Mutual Global Investors, and his book describes the different investing behaviours of professional fund managers in high conviction, ?best ideas? funds that he ran. The starting point is the paradox that, whilst slightly less than half of the shares selected made money, almost all the managers made money overall.
Whilst the key to this was money management and position sizing, he detected distinct groupings of investor behaviours as ?best ideas? investments developed losses or profits and the managers were faced with decisions. Faced with losses, ?rabbits? (on whom he vents his ire ? and sacked) failed to do anything, whilst ?assassins? cut losses quickly and ?hunters? doubled up on ideas where investment conviction was still held. Faced with winners, ?raiders? took quick profits, with the ?connoisseurs? (for whom he reserves most praise) treated investments like fine wines, quickly getting rid of corked vintages, and then occasionally sampling from but keeping the bulk of the best to maturity. Along the way he has some interesting statistics which highlight the rarity of truly winning investments, the tendency of investors to takes profits early-ish and the wisdom of cutting losses.
He uses ideas from behavioural finance and his own experience to explain the different investor behaviours, and has useful, practical pointers for winning as against losing. It?s an interesting and easy read with useful insights for the private investor.