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The Intelligent Investor

Diligence Matters To Morgan Stanley’s PMI Group

The advisors in Morgan Stanley Smith Barney’s PMI Group are among the most sophisticated and conscientious that I have ever met after attending last week’s conference in Hollywood, Florida.. My presentation focused on how New Constructs makes diligence profitable and cost-effective. Everyone wants diligence, but few can afford the time/expertise/resources to get it. New Constructs makes it affordable and simple.

After hundreds of meetings with institutional money managers, who, despite claiming to be value investors, had little concern for doing the necessary diligence on stocks and analyzing footnotes, I am very impressed with focus on diligence and risk management of the PMI advisors.

I think the key advantage of the PMI advisors is that they look their clients in the eye on a regular basis. They have direct relationships with their clients, they are often close friends. As a result, they are far more compelled to do their diligence and make sure they do their best to be good stewards of client assets. They are true money “managers” not money “takers”.

On the other hand, institutional managers are far removed from their end customers most of the time. As a result, their focus is different…on raising assets (to make more $) and matching their benchmark’s returns (not creating value). Not surprisingly, most (60%+) institutional money managers under perform the indices. More details are in a study from Mclean Heuristics using data from Standard and Poor’s Indices verses Active Funds Scorecard.

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