Look for an Experienced, Disciplined Management Team

In this day of easy access to information, it shouldn’t be hard to find information on your portfolio manager. It’s astounding that some of these men and women still have jobs – despite turning in horrific performance, they are still able to raise capital from investors who somehow think the next time around will be different. If you find yourself holding a mutual fund with a manager that has little or no track record or, even worse, a history of massive losses when the stock market as a whole has performed well (you can’t hold it against them if they run a domestic equity fund and they were down 20% when the Dow was down 20% as well) you should consider running as fast as you can in the other direction.

The ideal situation is a firm that is founded on one or more strong investment analysts / portfolio managers that have built a team of talented and disciplined individuals around them that are slowly moving into the day-to-day responsibilities, ensuring a smooth transition. It is in this way that firms such as Tweedy, Browne & Company in New York have managed to turn in decade after decade of market-crushing returns while having virtually no internal upheaval. Another good example is Marty Whitman and Third Avenue Funds, the organization he built and continues to oversee.

Finally, you want to insist that the managers have a substantial portion of their net worth invested alongside the fund holders. It’s easy to pay lip service to investors but it’s a different thing entirely to have your own capital at risk alongside their's causing your wealth to grow, or fall, in proportional lockstep with the performance of your funds.

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