Large money flows, mutual fund withdrawls, and money manager performances

[Neil Stoloff]

I am nonethess fascinated by the mass underperformance of the so-called "smart money" (that is, the money flow that EV tracks). Apparently this smart money is not so smart after all. But how is it dumb? I assume it is dumb because it is large and slow. Moreover, the authors at Zero Hedge argue they are are sheep; John Thomas, "the Mad Hedge Fund Trader" has said the same.

Are our returns and expectations for returns (based, for example, on the performance of the Robot) unrealistic? Or do sharp minded individual speculators inhabit a different universe of some sort, where different laws and expectations can apply?

Nickola,

Professional money managers are not immune to human foibles. Perhaps their training and experience enable them to cope better than most others, but any such advantage is reduced by the career risk they face if they act outside the mainstream (hence the "sheep" label). Two of my favorite quotes on this topic:

“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.”

~ John Maynard Keynes

“Career risk drives the institutional world.”

~ Jeremy Grantham (crediting Keynes)

Mr. Grantham elaborates on the role played by career risk -- to the detriment of client investors -- in Part 2 of his Jan. 2011 quarterly letter. See: http://www.scribd.com/doc/47607952/J...ry-2011-Letter

Yes, the sharp-minded individual investor who cares only about performance enjoys a distinct advantage.

Cheers,

Neil

[nickola.pazderic]

And many thanks for the replies.