We think it makes sense to study your competitors. As analysts, we closely study the competitive threats facing the companies we research. And we study our money management competitors for lessons in what to do (ideas from great investors) and what not to do.
Falling in the “what not to do” bin for us is the tendency to automatically equate firm size with investment excellence. Mega managers often take great pains to highlight how big their businesses are (assets they manage, number of portfolio managers and analysts, number of offices, number of countries in which they invest in, etc.).
Smaller firms tend to have a few potential advantages in seeking strong investment results. We’ve previously discussed the advantages that smaller asset groups have in pursuing investment ideas of all sizes. Clients of smaller firms also can benefit when their investment teams are material owners of the firm and invest alongside their clients.
Finally, think about fine and very well-known restaurants. Do you think Wolfgang Puck is personally making your dinner at Spago (if that’s still around)? He might be for his most famous patrons, but maybe not your dinner (sorry Wolfgang!). Large firms can have prestigious names on their door that may or may not work on your portfolio. Most smaller firm leaders directly analyze and manage all of their accounts whether you are the biggest or smallest investor.