Size

TV people think that the size of an investor’s fund is some sort of indicator of how right that person’s market calls will be.

It’s obviously foolish, but it’s also a little bit smart because it’s a mental shortcut when you’re trying to juggle the opinions of hundreds of people in the air at all times. The shortcut works like this:

1. Person A manages $10 billion. 
2. Person A could not have gotten to that point if they hadn’t been right about a lot of things.
3. Person B only manages $50 million.
4. Of course, if Person B’s market calls had been as worthwhile as Person A’s, such a large disparity would not exist between their respective assets under management.
5. Therefore, the market opinion of Person A carries more weight and should be paid more attention to. 

It’s not completely terrible as a heuristic, so long as you’re not counting on it to actually work.

Because what it leaves out is the following:

Person A’s $10 billion may have resulted from having a lot of success in a previous market era that no longer exists. Person A’s abilities, insights and edge may no longer be useful in today’s market era given increases in competition, increased use of technology and the leveled playing field of actionable information.

Person A’s $10 billion may have formerly been $15 billion before 50% of the total was either lost or redeemed away. Or it may have been $10 billion for a decade while the stock market doubled and then tripled. Is that $10 billion worth of opinion still as meaningful then?

There is also an argument to be made that someone managing $10 billion may be significantly more disconnected from what’s happening at Street level and the pulse of other market participants. There is also less of a hunger to get things right and possibly even a strategy shift that emphasizes protecting an existing asset base (taking less risk) as opposed to increasing it.

Finally, and this should go without saying, there is zero evidence that anyone can consistently make great market calls. There is also zero evidence that this sort of thing is even necessary. Over the last ten years, I’ve met pretty much all of the top performing investment managers in the world. None of them truly believe that they make call after call and get them right with any sort of regularity, regardless of what resources they have at their disposal, how much information they process and what sort of conversations they’re having with high-level experts.

They do their best, and sometimes get the big stuff right, and sometimes get lucky or don’t get too unlucky when they’re wrong. And that’s been enough.

This is not to say that Person B, with their $50 million in assets under management will be any better or worse at predicting markets. Small isn’t good just because large is unreliable. The major difference is that the big investor is more influential and more people want to hear what they think versus the small investor.

Which again, doesn’t really help, but it’s also fairly logical in a world where everyone is taking shortcuts all day just to get home that night in one piece.

So I get it.

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