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Selling Fast and Buying Slow

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Selling Fast and Buying Slow

Heuristics and Trading Performance of Institutional Investors

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Professional investors add a lot more value when they buy assets than they do when they sell them.

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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • For Experts

Recommendation

Economists Klakow Akepanidtaworn, Rick Di Mascio, Alex Imas and Lawrence Schmidt provide new and thought-provoking insights into the performance of institutional portfolio managers. This technical analysis should be of particular value to pension fund trustees and financial professionals, as it highlights a consistent pattern of errors investment managers make by using rule-of-thumb strategies for securities sales. Interestingly, these blunders don’t seem to occur in buy decisions, when managers rely less on heuristics.

Summary

The efficient market hypothesis says that investors are always rational. Yet research suggests that, in practice, portfolio managers (PMs) who excel at investment selection often make inefficient selling decisions. And that can lead to poor overall manager performance. Moreover, a PM’s focus solely on the past performance of securities when selling leads to deficits against not only a benchmark but also versus a hypothetical process in which the manager sells positions purely at random. But if the PM can access relevant information, he or she can reduce the discrepancy...

About the Authors

Klakow Akepanidtaworn, Alex Imas and Lawrence Schmidt are academics at the University of Chicago, Carnegie Mellon University and MIT, respectively. Rick Di Mascio is CEO of Inalytics Ltd., an investment analysis firm.

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