In The Naked Portfolio Manager: Why Rules Trump Reason on Wall Street, Certified Financial Planner Robert Fischer challenges the “old school” thinking of how investment advisors and portfolio managers make financial decisions. Fischer starts with the idea of portfolio managers with magic powers to make decisions beyond the clients’ comprehension is poor management. Instead he advocates an open, transparent, or “naked” policy where decisions are based on proven models and easily explained to clients.
The Naked Portfolio Manager outlines the fallacies of using human logic in making decisions and how these complex thinking errors can cost investors lots of money in diminished returns and why traditional portfolio managers still rely mainly on their own judgment. Instead, using a statistical prediction method based on historical models provides a better return over time.
There are several Statistical Prediction Methods (SPM) currently in practice. The models have consistently outperformed the market average and S&P returns year-over-year. Fischer followed the returns of SPM over recent years and the impact of the 2008 financial meltdown. From the author's Conclusion:
In this book I have tried to make the case that decisions regarding stock selection are best made using statistical models and that even the best traditional portfolio manager could improve their results by creating their own rules-based decision algorithm and sticking to those rules.”
Midlothian Virginia author Bob Fischer brings together his combination of skills as a senior portfolio manager at a national brokerage firm with his study of human behavior. He has studied human decision-making process for world-class chess masters as well as classical military decision making and applies it to investment decisions.
The Naked Portfolio Manager is a great read and provides insightful information for people within the financial services industry as well as individual investors.
For more information: http://www.thenakedportfoliomanager.com, The Naked Portfolio Manager
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