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The importance of the assumption hunter

The investment world has historically been driven by a number of ingrained assumptions which are heavy on opinion and light on facts. When talking about investing one’s hard-earned money, it is crucial to guide investment decisions based on fact and not some pundit’s opinion. This is no more apparent than in the majority of the investment industry, which is predicated on delievering outperformance from active management. Certainly, active management has had some great successes such as Warren Buffett and George Soros to name a few but, in aggregate, the active management industry segment has generated a mountain of revenue and a molehill of outperformance. In fact, 70% of all investment managers fail to beat their benchmark over a five-year period.

A recent article (highlighted by the blog Research Puzzle) examines the need for every organisation to have an Assumption Hunter.

The blog states:

“…assumptions will eventually collide with an evolving world. Therefore, they can’t be viewed in isolation, but in light of what’s on the horizon. That’s tough (and creative) work — anticipating change is easier said than done…. You need assumption hunters to ferret them out, to identify the decaying and destructive ones for what they are and to recognise when a firm is ill-suited for the environment on the horizon. Who should do it? McCracken says such a role is naturally the province of those trained in the liberal arts. (That sound you just heard was a bunch of clicks from investment types, leaving this posting just as I was about to speak to them.)”

We at MASECO could not agree more. To the investment management business we are the assumption hunters. Rather than manage assets with the status quo, we delve deep into the data to better understand the fundamental relationship of risk and return. Furthermore we strive to see where our actions can add value and where our actions can detract value. Having taken the Hippocratic Oath of Investment Management, we seek to do no harm and only add value. This means a stringent focus on asset allocation, cost cutting and steadfast resolve to deliver high levels of after-tax performance.

Are we always right? Certainly not. But we are never afraid to roll up our sleeves and get dirty with the data. By continuously testing and re-evaluating our ideas via new academic literature and proprietary research we aim to deliver our clients with the most empirically robust investment structure.

The real question is, what other assumptions are we operating under that need to be radically changed? We look forward to your comments and please be sure to send any questions you have directly to enquiries@masecopw.com.


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