Stick with good fund managers
- Alan Lavine and Gail Liberman
Sometimes good portfolio managers deliver lousy returns. They are not perfect stock pickers year in and year out.
Just because your fund manager has underperformed for the past three years doesn't necessarily mean that it's time to cut and run. Even the top-performing managers will have extended periods of underperformance during a given 10-year period.
So making a judgment call on your mutual fund manager requires discipline and patience.
When looking for a manager that might be ripe for turnaround, look for someone with the following characteristics, suggests David Geller, CEO of GV Financial Advisors in Atlanta.
A five-to-10-year record of excellence and a short three-to-five-year record of underperformance.
An out-of-favor investment process that makes sense. For example, it makes sense to invest in health care and technology stocks for the long term. Hard to imagine those industries will experience anything but growth over the next 20 years. Yet, many health care and technology companies have had relatively poor performance over the past few years. Look at the relative value of their core holdings. Are they holding companies that are continuing to experience strong growth, but are selling at relatively reasonable valuations? Is the manager sticking to his beliefs, or is he or she about to throw in the towel? You want a manager with nerves of steel.
Spouses Gail Liberman and Alan Lavine are syndicated columnists. You can purchase Alan Lavine & Gail Liberman's latest book Quick Steps to Financial Stability (QUE Publishing 2006) online at www.moneycouple.com or at your local bookstore. E-mail them at MWliblav@aol.com.
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