Obfuscation

When a fund has had poor performance, there is nowhere to hide — the numbers show everywhere, in all the databases and all the reports from every financial publication. But if you read the annual report after a fund’s disastrous year, the managers’ prose seems to make performance not so bad. It’s like a spoonful of sugar: “The benchmark we measure our fund against returned 26 percent and we returned 1.48 percent. The difference was due to headwinds in the commodities markets…” That’s not a real quote, but it is doggone close enough. 

Here are some of the terms investment managers like to use when trying to paint bad into good:

• Headwinds;
• Challenges;
• Poor environment;
• Difficult economic underpinnings; and
• Unusual. 

There are lots more, but, overall, I think the favorite word by far is headwinds. 

What we need fund managers to say after a bad year is this: “We did a crappy job in 2013, and we are going to do our best next year to improve results. Essentially, this time, your fund was FUBAR, and we’re damn sorry. We made the mess and we’ll do the best we can to clean it up.”