Clients never forget when they missed or were told to sell what turned out to be a good stock – bad sell recommendations live on forever
On Monday of the August long weekend, a friend saw me paddleboarding and took exception. He gave me a hard time for playing on the water while the stock market was melting down.
This got me thinking about asymmetry, or, as Google describes it, a lack of balanced proportions between parts of a thing. The interaction with my friend is one example of asymmetry in the investment industry, but there are many others.Investors are forever searching for an asymmetrical bet – a stock that has tons of upside and little downside. Of course, any analysis is a matter of opinion.
Second, analysts don’t want to jeopardize their relationship with the management of the companies they follow. I have personal experience with this. When I was an analyst, I put a Sell rating on a stock that I’d covered for years and knew well. After I did that, my access to the CEO dried up. He stopped taking my calls.
It’s partly because they’re good at what they do, but an asymmetrical compensation system is also a significant contributor. Top performers get huge bonuses when things go well and are still well paid when results are mediocre or even poor. Management’s desire to keep their best people means investment professionals are regularly overpaid for lacklustre results.
Time Money Stock Asymmetry Account Downside Investment Cent Tom Bradley Google Steadyhand Investment Management
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