Philosophy, Process and People
The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results.
- Philosophy refers to the overarching beliefs of the investment organization. For example: (i) Does the manager buy growth or value shares, or a combination of the two (and why)? (ii) Do they believe in market timing (and on what evidence)? (iii) Do they rely on external research or do they employ a team of researchers? It is helpful if any and all of such fundamental beliefs are supported by proof-statements.
- Process refers to the way in which the overall philosophy is implemented. For example: (i) Which universe of assets is explored before particular assets are chosen as suitable investments? (ii) How does the manager decide what to buy and when? (iii) How does the manager decide what to sell and when? (iv) Who takes the decisions and are they taken by committee? (v) What controls are in place to ensure that a rogue fund (one very different from others and from what is intended) cannot arise?
- People refers to the staff, especially the fund managers. The questions are, Who are they? How are they selected? How old are they? Who reports to whom? How deep is the team (and do all the members understand the philosophy and process they are supposed to be using)? And most important of all, How long has the team been working together? This last question is vital because whatever performance record was presented at the outset of the relationship with the client may or may not relate to (have been produced by) a team that is still in place. If the team has changed greatly (high staff turnover or changes to the team), then arguably the performance record is completely unrelated to the existing team (of fund managers).
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Famous quotes containing the words process and/or people:
“The moralist and the revolutionary are constantly undermining one another. Marx exploded a hundred tons of dynamite beneath the moralist position, and we are still living in the echo of that tremendous crash. But already, somewhere or other, the sappers are at work and fresh dynamite is being tamped in place to blow Marx at the moon. Then Marx, or somebody like him, will come back with yet more dynamite, and so the process continues, to an end we cannot foresee.”
—George Orwell (1903–1950)
“For them it’s out-of-date and outmoded to perform miracles; teaching the people is too like hard work, interpreting the holy scriptures is for schoolmen and praying is a waste of time; to shed tears is weak and womanish, to be needy is degrading; to suffer defeat is a disgrace and hardly fitting for one who scarcely permits the greatest of kings to kiss the toes of his sacred feet; and finally, death is an unattractive prospect, and dying on a cross would be an ignominious end.”
—Desiderius Erasmus (c. 1466–1536)