Hi ! Its me again. Roscal the fund manager of Fruity Pie Mutual Fund FPMF. Although judging from the response, my story is not very popular; I believe I do have something of value to share. I think mutual fund is good for the general public, however like any system build by men, most often it can be subjected to abuse, by people like me. People like me always look for inherent flaw in the system and exploit it. Part two of my stories talk about the time when I was desperate. The key to success in this business is to have people trusting me with their money to invest for them, sometimes it can be very pressurizing. In these times of emergency these were some of the tricks at my disposal :

1. window dressing – Some times I hear Bananasians complained that their investment in the fund seems to go nowhere although the fund performance as report is doing very well. They all blame themselves for their own bad timing. Ha! There are times they were wrong. You see, share prices are based on demand and supply of the shares in the market. A sudden surge in demand for a particular counter, will usually followed by a sudden surge in the share price. This does not mean that the company is doing very well; it is just an temporary price disturbance. Performance of my fund is usually on quarterly and yearly basis. When there is a need to ensure that my unit prices at the end of the period is higher than at the beginning to show some growth, I can sort of artificially manipulate the unit prices by doing a last minute bulk purchase of shares in counters in which FPMF have substantial shareholdings. Once underlying prices had increase, the Net Asset value (NAV) of my fund will increase as well. Of course, after the period end, most often the price will go back to the price before i did the window dressing. This is very commonly used by the some listed companies in Bananasia, so it is nothing new, in fact it is a industrial norm I would say in Bananasia.

2. Syndicate price fixing – Sometime I need to ensure that the counter share price will increase when i do the window dressing, so I have friends in other Funds, to help to sell a few shares at very high price and I make sure I manage to buy it. So the NAV in both of our funds would increase. This is usually done at the very very last minute before closing of the market for the day. In fact in some countries, the fund managers were so ‘powerful’ that they could even transact after closing.

3. Syndicate play – I will never ever indulge in this. But just to share with you the possibility of this happening. Then again has this ever happened ? You guess. Have you ever heard of rotational play ? Syndicate of fund managers will gang up to collect shares in a few counters in a big way over a period of time. Then they will create artificial opportunities to tempt individual investors (retail investors) either mainly through rumours, and get the them to chase after the selected stocks, they will push up the shares to fulfill the ‘prophecy’ . Once the bait is taken, the syndicate will release their shares as the price moves upward. When the syndicate had finished releasing their shares, usually the price will come crashing down, and you will see another group of counters with prices going up. The process will be  repeated again and again.

All these are illegal in Bananasia you might say… But this is Bananaisa , what do you expect?

The above story (Part One and Part Two) is purely hypothetical for educational purposes only, should there be any similarity to any real life situation, it is purely coincidental. The author hold no responsibity as to the accuracy of the facts and theories.

I got a good feedback from one of my friends saying that my blog is not controversial enough. My objective is to inform, and adult readers need to be entertained while they learn. So I am going to be bit more edgy this time, taking on the large fund management industry as whole without pin pointing anyone in particular.

More than 50 years ago, while studying in Princeton, founder of Vanguard fund, Jack Bogle wrote a thesis, suggesting that mutual fund is the way to go, because they will have professional fund managers equipped with all the necessary information. The Pros will surely do a better job at investing as compared to the average Joe who are investing based on limited information or hearsay. According to him, this will make the stock market less volatile, thus better for the economy and the investors as well.

Fast forward 50 years later, more than 70% of US stocks are owned by institutional investors, up from 10% when Bogle wrote his thesis. However, the market “herd mentally is still very much alive”. The reason is because the main objective of fund manager is to make sure investors keep their money with them. Making sure the fund perform is one of the ways to convince investors to put more money into the fund. In a volatile market, running with the crowd seems to be the safest thing to do in terms of maintaining credibility. Their protection will be “…. we are not the only ones caught off guard, all the other experts have got it wrong too…”. I am sure many fund managers have the necessary information to be contrarians. In order to implement the strategy they first need to “sell’ the idea to their superiors and the investors. If the investors lose confidence during the ‘rough ride‘ money will be pull out before the intended result is materialized, and the fund manager will be reading “job classified section” on the same evening.

What I would like to see in the future is the emergence of a group of fund managers who has the necessary mandate or credibility to run against the herd whenever it is needed to maximize the returns of investors’ money. I think a “lock in” period condition will probably be a good solution. For example, I am launching a new fund call “Commando Fund”. Investors will have to lock in with me for at least 7 years. During the 7 years, if the investors choose to withdraw the money, a high fee will be charged, or the investor can transfer to another person on an “off market” deal. The maximum fund size is only RM10million each, that’s why early withdrawal is not encouraged as it will disrupt the strategy. If an investor needs to do so, the ‘high fee’ will be charged to take care of the cost of borrowing money to replace the outgoing fund. This will also help to make the fund have some healthy gearing. The fund will invest in high dividend yield stocks / bonds until there is a crash or unique situation happens “ ..something like Transmile saga…“ the fund will move in aggressively like a ‘crack commando team‘. So any takers?