Experience Best In Fund Managers
July 20th, 2009
If you are looking for a fund manager, pick one with more than just a few years in the market. New research has shown less experienced fund managers have been at the centre of recent stock market bubbles. Two US University professors have found evidence younger, inexperienced brokers contributed to the forming of the stock bubble in the late 1990s. They say at the start of the “tech bubble” managers aged below 35 held similar exposure to tech stocks as their older more experienced peers. But as the 2000 peak approached, younger managers increasingly built their tech holdings by actively rebalancing their portfolios, while more experienced managers did not. The young managers displayed a herd like mentality running up exposure to tech stocks after quarters of high returns – this fuelled the bubble, and the eventual crash.
Recently the average experience level in US market traders has dropped to about 7 years. Many of these brokers and analysts had yet to experience a major downturn. But the latest crash also has something to do with the fiscal irresponsibility of those at the top of some finance houses who indulged in very risky behaviour. The main lesson is to look at the experience of the people handling your money, but don’t completely abrogate responsibility for your cash.
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