Running winning positions and cutting losing positions
One of the key characteristics in successful fund management is the ability to understand and play by the rules of probability, by running winning positions and cutting losing positions.
This sounds simple, though psychological and behavioural hurdles faced by investors have made this more challenging to do in practice than it is in theory. Behavioural finance has observed phenomena such as the disposition effect, prospect theory and mental accounting present hurdles to investor decision making. In this case, poor selling decisions.
What behavioural biases might apply?
We observed that the majority of research into these behavioural phenomena have been done on individual Investor portfolios to date. In our research paper we expand on the existing research by focussing on behavioural analytics of institutional investor portfolios and transactions to test whether professional portfolio managers are susceptible to the same behavioural biases.
What evidence have Inalytics used?
Inalytics Peer Group database of institutional investor decisions was used for the study. The selection focussed on Inalytics’ asset owner portfolios, which in this study included over 45,000 transactions across a broad range of industries, regions and benchmarks.
In our research paper, we examined our database of transaction level data to explore why portfolio managers don’t run their winning positions and cut their losing positions.
Download the full research paper below to learn more about how poor selling negatively impacts investment returns.
For guidance on overcoming poor performance, listen to episode 1 of our Analysing Investment Skill Podcast.