A disciplined approach 1 09
Chapter 4), which traded futures, was strange in purporting to follow
a strategy entitled ‘global fixed income markets’. That distortion made
me very wary of that manager from the start.
There are many books about the trading styles of different manag-
ers and it is not the purpose of this one to reiterate some of the very
good material that exists. What you should be concerned with here
is the exercise of matching what is traded with what is represented to
you. For instance, a manager may purport to trade European markets
but you need to know what that means in practice. Starting with the
basics and by way of example, what this means is that the portfolio
is made up of European stocks which should be highly liquid. It may
also contain stocks from developing markets depending on the defini-
tion of European in the legal documents, for example, where risks may
be much higher due to lack of liquidity. Do not be surprised if you
uncover emerging market stocks in the portfolio as this will be legal if
included in the prospectus. I do not mind if the portfolio has develop-
ing market stocks as long as:
the manager is upfront about it and able to explain why (e.g. some
opportunities from emerging markets are too good to miss);
I know that the manager is actively pursuing a risk management
policy that deals with associated risks; and
the manager has appropriate expertise.
A disciplined approach
You should ask a manager whether it has any practice/set discipline
in the way it makes an investment decision. Over time it is clear that
the best traders, like the best athletes, are people of incredible skill
who have the talent to train their minds to act in a certain way. The
best way to train the mind, much like the body, is discipline so that
certain actions become a reflex and emotions are taken out of the
equation. If you can find evidence of this then you are doing well.
Just as revealing is evidence of the opposite, and that is often a con-
cern. This form of review is also a good way to appreciate whether the
strategy will change over time (this is known as style drift), which

Get Financial Times Guide to Investing in Funds now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.