These are words from an article in the FT “Wildebeest investors and the dangers of the herd. Safety in numbers is not always the best approach”
Its a discussion about Herd mentality. “In a report this week from bankers Rothschild & Co, which says that investors often exhibit the same “herding behaviour” as animals, seeking “the safety and comfort of the herd”. In a boom, they pile in together into overvalued markets; in a bust, they collectively panic and dump stock.”
To avoid the herd mentality, then it implies, you use professionals. It says “Private investors are generally less well informed than professionals and, typically, in no position to move as quickly. “
It is certainly clear that professional investors do sit at their screens most of the day when compared to private investors, and so in theory, they can move much more quickly. That makes sense on any level. But it’s not the speed of change that’s important, it’s all about outcomes. Have asset managers on average been able to react with speed and generate excess returns? The answer is no. Have some fund managers ever been able to do so? The answer is yes, but equally so have some private investor making their own decisions. The point is if professionals on average have not outperformed by making the right calls at the right time, sitting at their desks all day and reacting is of no value to investors.
Investors need to think more deeply about who they are employing managing their money and what these people are actually doing. It may not be always what you want to hear!