To help investment organizations improve, I assist them in finding and closing gaps of various kinds — in how they are structured, how they make decisions, and how they communicate with others. The gaps can be subtle, but many of them are readily apparent if you look carefully. Some are even immediately obvious.
Any organization has gaps between what it says it does and what it actually does. Some are mere cracks, small and relatively unimportant, while others are veritable canyons, destined to cause major problems over time.
To take one area, consider the investment process of an asset manager. There is the marketing version of process and the actual process. The former is nicely summarized with some neat graphics and polished paragraphs. The latter is a product of the real world — of changing markets and organizations made of people. The two are not the same. (Consistent and repeatable? Hah!the research puzzle | This is a posting of mine about that phrase. ... continues
Many elements of investment practice were born out of what we call “academic research.” For instance, such widely used concepts as modern portfolio theory and the Sharpe ratio.the research puzzle | Many of the ideas get extended beyond where their authors intended them to go. The Sharpe ratio is a case in point. “Active share” is a more contemporary case study, having gone from a little-discussed conceptthe research puzzle | This is the essay I wrote about it in 2010. to a hotly debated one.InvestmentNews | Here is an article about that change.
Among practitioners and journalists, more and more attention is being paid to the flow of working papers coming from professors. A good recent example is “Picking Winners? Investment Consultants’ Recommendations of Fund Managers,” by Tim Jenkinson, Howard Jones, and Jose Vicente Martinez.SSRN | At the time of this writing, the paper is identified as slated to be published in the Journal of ... continues
Last week, I posed this question on Twitter: “I’m in the midst of doing some independent reviews of asset managers (where I have full access); what would you look for at yours?”Twitter | Most of my tweeting involves providing links to interesting reading from around the investment ecosystem.
There were a few responses, including ones about the need to understand the interplay of narrative and events, and the worth (or lack thereof) of onsite due diligence. Then, a person who tweets under the name Unrelated Nonsense replied by saying, “Look in the fridge.”Twitter | Here is that response.
I got a chuckle out of that. I assume that others who have witnessed the surprises and mysteries inside refrigerators in the kitchens of organizations did too. But, in addition to being funny, the tweet served as a metaphor for the craft of due diligence: you need to seek out that which is hidden. No one is going to show you the inside of the refrigerator, and ... continues
Ray Dalio founded the hedge-fund colossus Bridgewater some four decades ago. He stands out among the leaders of investment firms for his unusual thoughts about how things work.
To wit: economies, organizations, and individuals are machines. They can be analyzed by how well they operate, by how well they produce outcomes to meet particular goals. In some instances, there are opportunities to design and improve a machine (for example, an asset management organization) while in other cases (think of the world economy) what you need most are the ability to understand and to adapt.
Dalio’s economic ideas and investment practices are worthy of study, but it is his organizational thinking that usually commands attention and divides those who have looked closely at Bridgewater into three categories: the believers, the confused/uncertain, and those that see a cult of sorts.
A 2011 New Yorker article by John CassidyNew Yorker | Titled, “Mastering the Machine.” is a ... continues
Investigative research, such as investment due diligence,the research puzzle | My last posting was about “defining due diligence.” requires an objective look at the evidence at hand. In addition, if your goal is original, independent work, it helps to have conceptual avenues to pursue that might yield differential information. In doing due diligence, you should always be looking for “a way in” that aids in understanding the organization under review.
Often, one presents itself when you least expect it. Some little thing that seems inconsequential at first doesn’t fit the pattern of the whole. The range of possibilities is endless, especially if you are doing an on-site visit and are open to clues in the environment. Thus, finding that gateway to understanding can be quite unexpected.
But you can’t count on that happening. Therefore, a list of prepared questions can help you control the agenda and avoid the standard topics that ... continues