Nov

6

The key to success in just about any endeavor is to have a process that works over time, adjusting this process to changes in the environment, and not letting short term noise get in the way of the long term success. As a hedge fund manager this process gets clouded when we get paid quarterly, and get marked and overly scrutinized on a monthly basis. This has a tendency for the manger to get off the long-term track and do things like book a good month for marketing purposes or book a good quarter for incentive fee purposes. This may get in the way of the long-term success of the process, but it feels justified when short-term money is involved.

I believe a baseball hitter can go through this same psychology. A hitter may have a great swing, practice habits, and a coach that helps him make changes as necessary, and this process over 162 game season or even 1620 games over 10 years will lead to great success. This success of course says nothing about any individual one week or 10 game period of time. Come playoff time these long-term numbers get thrown out as the fans and media (the investors) want great performance when it counts most. The hitter is now in the same dilemma as the end of month hedge fund manager. He forgets the process and tightens us trying to ensure short-term success even though he may suffer a short-term setback in his long-term success. This thinking certainly affects the psych of the hitter and in fact makes matters worse than just the short-term randomness may indicate. I think this helps to explain the A-Rod scenario come playoff time as well as the performance difference in hedge funds.


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