by Janet Lowe
For those who don’t really understand what a mutual fund is here’s a simple view. If you and I wanted to invest in a big international company we might find that shares are selling at $100 each. And they are only sold in lots of 100. Individually neither of us might have enough money to buy those shares but if we pooled our money with others, we could purchase many company’s shares and earn some money while we hold them. We might hire someone to pick and choose which companies are the best ones to put our money in based on a number of different factors. Of course, that person we hire needs to be paid and s/he charges us some of our investment money for their time and expertise. That fee is called the Management Expense Ratio or MER.
Although Bill Miller has not kept a perfect record since this book was written in 2002 it is an interesting look at someone who manages those large mutual funds out of New York City. Written long before the 2008 market correction (yes, it was a correction, not the end of life as we knew it) and when interest earnings of 10% were a reasonable expectation, this book is a primer for those who want to understand how these people manage the enormous amounts of capital which are pooled together in mutual funds.
Written in a light style we first learn a bit about the man and how he learned to do what he does. In the process we find out about how economists think and what kind of art goes into deciding the value of something. Whether it’s a concrete item like a building or a truck or the ability to value the management style of a given company’s CEO, there actually are formulas and ways to come up with a value.
Once we understand all that, we learn how exactly those “smart people” we hire to make us money go about their business every day. How do they make decisions on what to buy and what to keep in our bundle of items called a mutual fund? There seem to be as many methods as there are managers at first. As we read on though we find that the formulas are quite rigid but the order in which they are applied change from person to person.
Lowe’s book documents the old economy before all the high tech changes came about and just how very much computers have changed how management makes decisions. Bill Miller is still out there today doing his best to earn the investors in his funds a good rate of return. Learning about him may change your mind about how you invest in the future.
