Investment Philosophy and Manager Evaluation, Again

Abstract

Investing involves making decisions about a future that is sufficiently uncertain that we are never quite sure if we are making the best decision. As investment professionals, we may have an abundance of data and bring the best training and skill to bear on a problem and still not know the best course of action. Given this, we must fall back on systems of belief—investment philosophies, if you will—to frame our decisions. Organizations, too, have systems of investment belief, which are closely linked to an organization’s culture. For an organization with a strong investing culture, the organization’s investment philosophy is an integral part of all major functions of the firm, including investing, human resources, and communication. Most investment philosophies start out as the unarticulated or semi-articulated vision of a firm’s founder. Sooner or later, most investment philosophies encounter a need to be articulated, cultivated, extended, focused, or updated, and to be incorporated into, or merged with, an organization’s culture. Philosophies also benefit from ongoing field testing as they are used in practice. This suggests that both firms and individual professionals can benefit from being deliberate in how they develop, articulate, and curate their investment philosophies.

TOPICS: Portfolio management/multi-asset allocation, portfolio construction