Ray Meadows

RBS Predicts Global Market Crash: What's In It for Them?

I think there is a reasonable probability that they are correct - certainly in direction if not magnitude. What they will get for this call is credibility with clients and investors that they are good risk managers, not just cheerleaders for being long. If they're wrong - well they were still being prudent about managing risk. I see little downside to their call from a client relations perspective and lots of upside.

Focus Funds: Does Concentration of Risk Improve Returns?

"Does concentration of risk improve returns?" is really not a very good question as it stands. Statistically the answer must be no if you have a large enough data set. Concentration of risk only improves returns if you have a manager with real skill. Warren Buffet is right and when we talk about "average" mutual fund managers then by definition we are talking about those who do not know how to outperform and so they may as well diversify to keep risk low and only lag benchmarks by their expense ratio (on average). It is obvious that any large study such as the one cited must have these findings whether looking at forcused funds or diversified funds. Over the last 9 years I've managed to earn a cumulative return of 398% - by never holding more stocks than I can truly understand and follow closely (i.e. < 40). Every other manager I know of with a similar track record has a similarly concentrated portfolio. Perhaps that is the more interesting study: of the managers with demonstrated skill, how many use a conscentrated risk strategy. My guess is it would be north of 80%.