Fund Manager

Usually a highly educated, highly specialized person who manages investments for a mutual fund or a hedge fund. Mutual fund managers are compensated by taking a percentage of assets per year while hedge fund managers are usually compensated by performance.

Investors should note that most mutual fund managers do not beat the returns of major market indices in the long run, which can partly be explained by Buffett term “institutional imperative”. Institutional investors, especially those with a huge amount of assets under management, have a high motivation to invest in popular favorites. In the 1990s most of the largest mutual funds held the same large cap stocks. Peter Lynch believes they do so because it’s a heads-you-lose-tails-I-win approach. It is easy to lay blame on the market or economy or adverse conditions if a large cap that’s in the fund’s portfolio falls, but the fund manager would be under fire if he invested in lesser known and perhaps more risky issues.