Fund managers are remarkably careless in deciding what and when to sell
was once a moderately successful trader who wondered why he was not an immoderately successful trader. Perhaps if he knew the secrets of trading superstars, such as Paul Tudor Jones or Jim Rogers, he might improve. So he asked them for those secrets. “Market Wizards”, his book of interviews with hedge-fund traders, was published in 1989. A second volume soon followed.
That is the central finding of “Selling Fast and Buying Slow”, published late last year by a trio of academics—Klakow Akepanidtaworn of the University of Chicago’s Booth School of Business, Alex Imas of Carnegie Mellon University and Lawrence Schmidt of the Massachusetts Institute of Technology—together with Rick Di Mascio of Inalytics, a data firm. They examined the daily turnover of hundreds of portfolios over several years, tracking more than 2m stock purchases and almost as many sales.
They do not realise that careless selling is harmful, it seems. “Selling is simply a cash-raising exercise for the next buying idea,” one told the paper’s authors. “Buying is an investment decision; selling is something else,” said another. Fund managers sell the stocks that come most readily to mind. Yet they are able to sell wisely, if they pay attention.
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