Wednesday, March 31, 1999

Madras Shirt Management

by Carter Newbold*

Fools probably should not spend much time considering the activities of the mutual fund community due to its chronic performance malaise. However, as a member of that much scorned community (almost all scorn duly earned), I get periodic glimpses into why we don't cut the financial mustard.

I recently attended a large winter investment conference in Florida. These gatherings bring together hundreds of companies and institutional investors in a forum designed to allow participants to learn about new companies and to size up management teams in person. Not accidentally, they tend to take place during the last few months of winter in Florida, Arizona, and California, providing a chance for sun-starved financial types to escape from Boston and New York.

The conference I attended made much of its "fun" setting (Orlando) and its casual dress code. Starched collars thrill me no more than the next nerdy analyst, so I enthusiastically crammed my bag with short sleeve shirts and khaki pants. On the first morning of the conference, resplendent in a green polo shirt, I strode forth from my hotel room through a sun-splashed lobby and into a conference facility teeming with wool, gabardine, and poplin. At least 80% of the participants at the conference were wearing regular business dress.

Why? Did they really believe that corporate management teams would not take them seriously otherwise? Were they all hunting for other jobs in the industry and wanted to look professional? Were they on the way to other meetings later in the day that required business duds? Are they all so hideously overpaid that personal valets assemble their clothing and are not always made aware of the destination?

These explanations might account for a few pinstripes, but the bottom line is that fund managers are creatures of habit and conformity. My industry is rife with folks who won't dare to allow their portfolios to inch away from benchmarks, won't give any thought to holding less than 100 stocks, and won't let a stock grow to more than 3% - 4% of total assets because that is just not how "professional" portfolios are managed. Similarly, they all wear suits in the sunshine in Florida because they are fundamentally unprepared by training and acclimation to be different.

Should you ever be forced to choose a non-index mutual fund manager (an unlikely event since most of Fooldom is devoted to its avoidance), go for the one sporting a madras shirt and a well-worn pair of jeans with a belled cap tucked in the back pocket. The person in the gray suit is the median manager -- and the median manager doesn't earn his keep.

*Carter Newbold, whose investment record has been easily trounced by The Motley Fool, is proud to never have lost a game of horse on the basketball court to David Gardner.

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