Comments on: Study says return-chasing could be “driving a wedge between fund and investor returns” http://allaboutalpha.com/blog/2009/03/12/study-says-return-chasing-could-be-driving-a-wedge-between-fund-and-investor-returns/ A finance blog about hedge funds, portable alpha and alternative investing. Mon, 13 Feb 2012 11:26:54 +0000 http://wordpress.org/?v=abc hourly 1 By: tom brakke http://allaboutalpha.com/blog/2009/03/12/study-says-return-chasing-could-be-driving-a-wedge-between-fund-and-investor-returns/comment-page-1/#comment-153353 tom brakke Fri, 13 Mar 2009 11:53:14 +0000 http://allaboutalpha.com/blog/?p=4338#comment-153353 The clients are going to do it, regardless of their apparent levels of sophistication or expertise. Studying investor behavior has shown me time and again that extrapolation is the greatest error for most people, professionals and amateurs alike. We've just witnessed one of the biggest examples of it (done to the sound of http://researchpuzzle.com/blog/2009/03/05/one-hand-clapping/). It is the responsibility of the manager to step outside of the excitement of the day, realize the human tendency to pile in, and consider whether the expectations of the investor are likely to be met. That doesn't mean you don't accept money when times are good, but it may mean that you don't accept some of it, and that you do everything possible to make sure that the prospect has realistic expectations going in. It's actually better for everyone concerned in the long run. The clients are going to do it, regardless of their apparent levels of sophistication or expertise. Studying investor behavior has shown me time and again that extrapolation is the greatest error for most people, professionals and amateurs alike. We’ve just witnessed one of the biggest examples of it (done to the sound of http://researchpuzzle.com/blog/2009/03/05/one-hand-clapping/).

It is the responsibility of the manager to step outside of the excitement of the day, realize the human tendency to pile in, and consider whether the expectations of the investor are likely to be met. That doesn’t mean you don’t accept money when times are good, but it may mean that you don’t accept some of it, and that you do everything possible to make sure that the prospect has realistic expectations going in. It’s actually better for everyone concerned in the long run.

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