British hedge fund tycoon Sir Paul Marshall has branded famed stock-picker Warren Buffett as ‘arrogant’ for suggesting that top investors do not need to spread their money among different stocks.
Marshall, who runs the Marshall Wace hedge fund, said picking a diverse range of investments was absolutely critical to reduce the risk of losing money.
‘There is the other side of that, which is the Warren Buffett style of investing, and he would say you’ve got to be concentrated [on a small number of shares],’ the hedge fund titan said.
Legend: British hedge fund tycoon Sir Paul Marshall has branded famed stock-picker Warren Buffett (pictured) as ‘arrogant’
‘He said diversification is a protection against ignorance, which is actually a pretty arrogant statement.’
Marshall quoted Buffett as having said: ‘If you know what you’re doing, you don’t need to diversify.’
Then Marshall added: ‘It’s actually not true.’
He claimed Buffett’s returns had deteriorated in recent years because he placed big bets on a small number of stocks. ‘He’s owned by his positions, basically,’ Marshall said.
He believes the success rate of fund managers picking ‘winning trades’ is only about 50 per cent, meaning managers are often wrong. Marshall said: ‘Every day you feel a schmuck. It should keep you very anchored and rooted and aware of your own fallibility.
‘But one of the problems with fund management is that people get revered because they’ve made a lot of money. There’s a hero cult.’
The Brexit supporter, who is understood to have donated £100,000 to the Leave campaign, was speaking at an event held last week by the London School of Economics.
He also warned that fund managers tend to lose their flexibility when their funds get ‘very, very big’ – referring to the downfall of Neil Woodford.
‘You start believing your own publicity, so you get hubris, and you stop taking advice from people around you,’ he said. ‘Neil Woodford… almost all of the ingredients were there for that blow-up.’
He added: ‘The main enemy of performance is not that they lose their skill, it’s character. They blow up, they get arrogant, they start believing their own hype, so that’s why most of us end up failing.’
Marshall, whose son Winston is in the band Mumford & Sons, cofounded Marshall Wace in 1997. The firm manages about $48billion (£35.6billion) for rich individuals and other investors including pension funds.
Some of the firm’s funds are managed by machines, which he explained can perform better than humans in certain instances.
‘It’s well known [Marshall Wace] had a public short interest in Carillion before it went bust. We were just processing quarterly financial statements and that was enough to give the signals that the company was in trouble, so machines can often actually deliver.
‘On the other hand, machines have not been good at turning points, because they’re not very good at being forward looking…so this year has been a disaster for machines.’
He said ‘two major turning points’ confused computer-driven funds this year: lockdown in March and the news of a vaccine last month. ‘The trend is definitely to be using more and more data.
There is a land-grab for using more alternative types of data to give you insights and to give you an edge.’
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