Max Out Your Returns: How to Find the Perfect Portfolio Manager
A portfolio manager is someone who manages investments in stocks, bonds, mutual funds, and other securities on behalf of an individual or institution. They’re like a personal stockbroker for large sums of money. Most people need a portfolio manager when they reach $1 million in investable assets.
There are many different types of portfolio managers, each with their own areas of expertise. Some portfolio managers focus exclusively on real estate investments, others just work in the oil and gas industry, while still more deal only in mutual funds or government securities. It’s important to find someone who specializes in what you want to invest in.
Portfolio managers are usually compensated either on a salary or via commissions, but not both. Some portfolio managers are paid based purely on the amount of money they manage, while others are paid differently – for example, they may be compensated based on the returns they generate for their clients.
Choosing the Right Portfolio Manager
You should consider a few different factors when deciding on a portfolio manager. If you’re interested in venture capital-type investments, then someone with a heavy emphasis on quantitative research may not be the right fit for you – they may be more comfortable using traditional ratios and indexes to measure companies. On the other hand, if you’re willing to take on a higher degree of risk and volatility, you may want to hire someone who is comfortable with speculation.
The most important thing to remember is that you should feel comfortable with the portfolio manager you’re speaking with. Ask as many questions as necessary to feel comfortable that this is someone who knows what they’re doing and can be trusted with your money. If it takes a little time to find the right portfolio manager, don’t rush it.
Here are a few central questions you may want to ask them to guide the conversation.
1. How would you describe your approach?
This is by far one of the most important questions on this list. There are several different types of portfolio managers, specializing in everything from areas like high-risk/high-reward venture capital to simple, low-risk index funds. Some managers will have a particular investment style that they follow, such as value investing or growth investing. It’s important to find someone who uses the approach you’re comfortable with.
2. What kind of research do you base your decisions on?
Different portfolio managers will use different types of research in making investment decisions. Some will use traditional financial ratios to measure a company’s health, while others may use non-numerical methods such as company interviews and visits to the business location. In addition, every manager will have their own unique research philosophy – some managers prefer breadth of research, using lots of different sources – statistics, industry analysts, etc. – to draw conclusions, while others will prefer depth of research, doing in-depth studies on a few specific companies.
3. Where do you find investment opportunities?
Managers who specialize in high-risk/high-reward ventures often have their fingers constantly on the investment pulse, constantly networking and talking to other investors in order to find emerging opportunities. Other managers, who tend to invest in more traditional investments such as large-cap stocks and bonds, may find investment opportunities through talking with other portfolio managers and industry insiders, or by taking advantage of the entire portfolio management process – buying undervalued assets and paring away excess to build a stronger core.
4. What’s your investment philosophy?
Every portfolio manager has their own investment philosophy – some managers may be proponents of growth investing, others value-based investing. It’s important to know what kind of philosophy the manager subscribes to before you invest with them, because it’ll likely influence how they run your account and will give you an idea of what kind of returns you can expect.
5. What’s your process for making investment decisions?
Different managers operate in different ways when it comes to how they make their investment decisions. Some take a very traditional approach, basing their decisions on financial ratios and well-established market trends, while others adopt an approach more like venture capitalism, putting personal knowledge of business practices and construction ahead of traditional ratios. Make sure you find a manager whose process is something you’re comfortable with, and will let you know what to expect from your account even if the market gets volatile.
Different portfolio managers will be more or less suited to your style and what you’re looking for in an investment. One of the best things about this industry is that there’s always something out there with your name on it – whether that means developing a more aggressive investment strategy, or just putting together a balanced retirement account. The key is finding the manager that works best for you.