by Stacey Santos

A piano teacher plays the piano,” Peter Anderson writes in Forbes, making the point that in picking a portfolio manager, a measurable, presentable track record of performance, along with an understandable security selection process, is what you want to find. The coronavirus pandemic has caused a great deal of financial hardship to many investors, driving them to seek opportunities to re-position their portfolios.

For most of us, our investment selection is based on the performance of a fund, a U.S. News writer comments, and “seldom do we take into account the merits of the person behind the wheel.” Yet the skill of the portfolio manager “driving the bus” is of key importance, Coryanne Hicks reminds us, cautioning investors to watch out for:


  1. lack of a disciplined and repeatable strategy (“What is not a good sign is style drift,” meaning the manager strays from the plan to boost short-term returns.)
  2. frequent buying and selling of holdings (Steer clear of funds with turnover ratios above 100%.)
  3. Overly large funds (“When a fund has too many assets, it becomes less nimble.”)One well-known method of measuring portfolio performance is called the Sharpe Ratio. The concept is based on the fact that investors might choose to put their money in government bonds to obtain a risk-free rate of return. Sharpe compares the expected return from a portfolio to that risk-free return, aiming for superior risk-adjusted performance.


Portfolio managers might follow a “model,” basing their individual security selections on a framework or “grid.” Two well-known examples include:

  • Dogs of the Dow

This investment strategy is based on buying and holding the ten stocks from the 30 in the Dow Jones Industrial Average with the highest dividend yields each year and rebalancing them annually.

  • Dividend Aristocrats

A dividend aristocrats strategy involves choosing securities from a list of S&P 500 companies that have raised their dividends in at least 25 successive years.

Yet another “model” is based on analyzing and managing downside risk. Based on the belief that avoiding losers can be as important to portfolio performance as finding winners, Revelation Investment Research, Inc. produces a Downside Risk Alert report that portfolio managers can use as a resource, pinpointing individual stocks that they believe will have the greatest downside risk (predicted to underperform with high volatility).

“While scientific and technical in nature, there is also an art to the portfolio management process,” Marshall McCormick of Fingerlakes Wealth Management explains. Essential basic steps include:

  • Identifying the objectives
  • Identifying the constraints (time horizons, tax considerations, cash flow needs)
  • Human capital (understanding investors’ needs)
  • Monitoring processes

Many experienced portfolio managers, such as those from the Sheaff Brock money management team, utilize various portfolio-building methodologies to meet client investment needs long-term.

“The market is as much about sentiment and psychology as it is earnings and profits,” as Avi Salzman remarked in Barron’s a couple of years ago, considering that investor perceptions often have as profound an influence on market results as reality. Through it all, portfolio managers must continue to “play the piano,” adhering to the simple principles of the “model” they’ve chosen to adopt.

related posts