Last fall the CEO of restaurant chain Panera Bread, Ron Shaich, made headlines in the business media by goading the leaders of fast-food burger joints (e.g., McDonald’s, Burger King, Wendy’s) to eat their own cooking, specifically the menu items targeted toward kids such as Happy Meals. “I don’t know how they can eat that stuff they’re serving kids,” Shaich said. “We have to ask ourselves if we want to market to children based on gimmicks.”
It may have been a shrewd PR move by the Panera CEO, but the point is well taken—if business leaders don’t believe enough in the products or services they sell to put their money where their mouths are (so to speak), then why should they expect their customers to do so?
The “eat your own cooking” problem may or may not be as pervasive in other industries, but it is evident that in our industry—investment management—there seems to be a troubling lack of belief among investment managers in their own strategies. According to a 2016 study by The Financial Times of data provided by Morningstar, “half of the 15,000 mutual funds in the US are run by portfolio managers who do not invest a single dollar of their own money in their products.”¹ The list of the worst offenders in this group includes some of the biggest names in investment management—Vanguard, State Street, BlackRock and more.
That should be discouraging to any client looking to entrust one of these large firms with most if not all their life savings. If these managers don’t have enough conviction in their skills to put their own money into their funds, then why would they expect investors to have any conviction either?
For investors who are searching for investment advice this topic should not be overlooked. If the investment manager is not invested in the products they are selling you then how much faith do they really have in them?
Walk The Talk
Here at Potomac, we talk a lot about the beliefs we have in the risk management strategies that we use for our clients. From a firm ownership perspective, we also walk our talk. Speaking on behalf of the principal owners of Potomac, I can say confidently that we do “eat our own cooking” and invest side by side with our clients. Most of our personal assets are invested in the same strategies that are available to clients.
We think it’s important to demonstrate our conviction to the clients who trust us with their assets. Catastrophic losses in passive investments present a real risk that all investors need to plan for. I have seen for myself the devastation they can cause, in the two significant stock market downturns during the 2000s. I know I don’t want to be in the position of trying to play catch-up from future market losses—and I haven’t met a client who wants to be in that position either. Given the duration and magnitude of the current bull market it’s more important than ever to make sure you are investing within your risk tolerance.
We Go At This Together
It’s not just the owners of Potomac, it’s also our employees because 100% of the company 401k is invested in our own strategies. So, our clients’ money and our own money goes to work together. We make investment decisions that not only affect us but other people as well. It matters a great deal to us that our clients recognize the responsibility we are taking with the money they entrust to us. That’s why we take a very public stand about our ownership stakes in the strategies we manage and share this information online for all the world to see.
When you’re considering working with an investment manager, it’s good to ask where they are investing their personal funds. We think you can learn a lot about that investment manager in how they answer that question. It’s worth considering an investment manager who does eat their own cooking and puts their money where their mouth is!
¹”Portfolio managers shun investing in own funds” Financial Times. Sept. 18, 2016. https://www.ft.com/content/2c910bce-7105-11e6-9ac1-1055824ca907