So basically portfolio management boils down to over or underweighting some benchmark stocks. Now that doesn’t sound too difficult, why should they be paid exorbitant salaries? And despite getting paid so much, they FAIL to deliver the results?
Well first we talk about the skills needed. The portfolio manager needs to know a lot to do his job. And I really do mean A LOT. If you think in terms of those 300 page university textbooks, it’s probably 30-40 of them (CFA has 18 for 3 levels). Plus, 10-20 years worth of global news material, that is maybe volume to fill another 5-10 textbooks.
On academic subjects, first, he needs to know about security analysis, that is the basic bread and butter. Then the financial statements, ie accounting. Of course there are the relevant subjects like economics, finance, business, statistics etc. Well most these are covered in CFA, but CFA just gives a basic flavour. To be well-versed takes years more and there are also subjects outside CFA, like psychology etc.
Then on the non-academic side, there are the 6 major industry groups: Financials, Resources, Industrials, Staples, IT and Utilities. The portfolio manager needs know the dynamics/drivers/issues of all of them. Not to mention there are perhaps close to 100 different sub-industries and businesses in all. On top of that, he needs to be in tune with global current affairs. Read more…