Taking the advantage dating for amateurs and professionals

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As a result, they often have to go with the crowd, even if the crowd is doing something very dumb.

All investors can suffer from short-termism, says fund manager Joe Wiggins, “but it is easier for amateur investors to avoid it”.Woolley noted that fund managers seek to beat benchmarks indices but not by too much, as a portfolio that is radically different from an index runs the risk of serious underperformance as well as major outperformance.That limits the potential damage caused by incompetent fund managers but it also drives perverse behaviour, with managers forced to buy certain stocks – even bubble stocks they know to be overpriced – if their returns deviate significantly from the index.GMO’s refusal to buy technology stocks during the dotcom bubble resulted in major underperformance and investors deserted the firm, with assets under management almost halving before Grantham was eventually vindicated.A fund manager’s prime directive is “first and last to keep your job”, says Grantham.

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