Investment-related comments from September 2005

September 21, 2005

What a coincidence! Yesterday I heard Michael Santoli, senior editor and "The Trader" columnist for Barron's say that hedge funds' emphasis on short-term trading and long-short investing is forcing equity research departments to change their focus.

This morning, I found this headline in my email from Citigroup: "The Global Investigator -- Short Circuit: Initiating Our Least Preferred Stocks Portfolio, Global Equity Strategist: Ajay Kapur."

Here's Kapur's rationale for starting this portfolio. "Long-only fund managers are … constrained to utilize on 30%-40% of their stock selection abilities. Why? Most stocks in a cap-weighted index comprise such small weights that list opportunity exists to meaningfully underweight them. As 120% long, 20% short portfolio, i.e., a modest level of short-selling and a 100% market exposure, captures 85% of the benefits of a full market neutral portfolio." By the way, the typos in the quote above are not mine. I think the first "on" should be "only" and "As" should be "A." Also, some word is missing from his third sentence.

Santoli, who spoke to the Boston Security Analysts Society (BSAS), also opined, "I think long-short will be durable."

To learn about future BSAS events, go to http://bsas.org/events/programs_events.asp.

September 14, 2005

"Tips from a Guy with Scars," was one of the topics covered by Charley Ellis at the Sept. 13 meeting of the Boston Security Analysts Society.

He offered the following advice to members of investment committees overseeing investments for foundations, endowments, municipalities and other organizations.

· "Control the agenda at manager meetings." Don't let it turn into a manager sales meeting instead of an investment review meeting.

· Insist on receiving "all materials ahead of time."

· "Outsiders" can help.

· "Skip GNP and investment details - Focus on key decisions."

· Annual policy review with alumni.

· "Strong staff = pure gold."

· "Keep readable minutes and use them." Too few investment committees develop an institutional memory for why they made decisions.

· "Select committee members with great care."

· "Consider capable multi-line managers."

Ellis is the author of Investment Policy, an investment classic, and the founder of Greenwich Associates (www.greenwich.com).