Every month, Stoic partner Freddy Forger writes a short column for FiscAlert, the magazine with the smartest money tips and therefore required reading for financial advisors and tax experts. Those who don't have a FiscAlert subscription can read the column here. This month, Freddy Forger offers help in finding the best asset manager.
In their search for the "best" asset manager, many people focus on the one who simply achieves the highest returns. They fall prey to what's known in behavioral psychology as "recency bias": they assign more value to recent high returns than to past returns. In other words, in their eyes, the asset manager who achieved the highest return last year is simply the best.
It sounds logical, but it isn't. No one has a crystal ball that can predict the future. No asset manager is capable of making the exact right predictions year after year, resulting in the highest returns year after year.My tip: look back at least 10 years. You're guaranteed to discover that the past year, when returns skyrocketed, is offset by years of miscalculations. Just like in a casino, the chance of losing is many times greater than the chance of winning.
It's best to curb your greed for higher returns. Scientific research has shown that consistently beating the market is essentially impossible. Ultimately, passive managers, who simply follow the market, achieve the best returns in the long run. Especially if the assets are spread completely predictably across all stocks worldwide. That's truly the best value for your money. And ultimately, for your peace of mind.
Door Freddy Forger
