Staying the Course: The Psychology of Investment Philosophy Drift

Posted on 06/16/2020

This content is by Stamford Associates.

By Professor Adrian Furnham and Steven Braudo, Stamford Associates Limited

When selecting Investment Managers (IMs), some of the most important criteria centre around their investment philosophy, special insights and decision-making style. One of the tests of a high quality IM is that they adhere to their philosophy which guides their decision making. It is presumed, and usually expected, that they sustain that philosophy and process over periods of time on a consistent basis whether it appears to be successful or not in the shorter term.

Yet many IMs seem to drift relative to their stated investment process, in particular during extended periods of underperformance. Analysts with access to relevant data and the appropriate capabilities can, and should, be able to identify this by means of their detailed analysis of the IMs portfolio and the trading patterns.

Even though some IM’s know they are being monitored for their potential drifting (a phenomenon that is likely to be outside of their discretionary mandate), they still do it!

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