The due diligence that advisors undertake in selecting money managers to whom they entrust their clients’ assets is a cornerstone function for ensuring their clients’ long-term financial success.
While the research into the behavioral biases of individual investors is quite robust, there is less research into how behavioral biases manifest themselves in professional money managers. In a recent academic study, “Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors,”(1) researchers looked at 783 portfolios, with an average portfolio value of about $575 million, over the period of 2000 to 2016. Their primary conclusion was, “…while investors display clear skill in buying, their selling decisions underperform substantially—even relative to strategies involving no skill such as ra
ndomly selling existing positions.”(2)
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