Smart Investing investors Know When to Fire an investment Manager

Many investors make two investment mistakes:

• Fire investment managers they should keep, or

   

• Keep the investment managers they should have fired.

When people make either of the above investment mistake, it is usually because they make a decision "by the numbers." But smart investing does not always mean fire an investment manager whose performance has slipped, or to keep one whose results have been good.

Instead of automatically terminating an investment manager with poor performance, first be a smart investor and find out what's behind the disappointing investment results. For instance, an investment manager may be getting mediocre returns because his investment style is temporarily out of favor. Fire that investment manager now and you will miss the rebound in performance when the style cycle shifts. Or you might have a "defensive" investment manager sitting on large cash reserves because of a speculative market environment. His near term performance may suffer, but if you drop him for a more aggressive manager, you are inviting trouble when the market inevitably cools. Effectively, you will be doing a market timing strategy if you chop and change managers by their investment results, as well as making your investment decisions based on your emotion.

Conversely, sometimes an investment manager should be fired in spite of good performance. If you see warning signs of organizational turmoil, a slackening of investment disciplines, or other kinds of trouble ahead, you should be prepared to take action BEFORE your investment portfolio suffers.

Click here to read about RED FLAGS of investments and how to recognize when to fire an investment manager.