Whose fault is it?
As a PM if I disagree with analyst (eg they recommend a stock and I don’t buy because my PM friend dislikes it, or they recommend trimming and I don’t listen) and they turn out to be right (stock goes up or misses earnings/tanks), how do you attribute fault?
one view is that the analyst did not convince the PM to come to their view, and that represents an analyst failure given the PM is constrained, and the analyst deserves to be yelled at/reprimanded/comp reduced at YE. Is that correct or does the PM take some fault in this case for not listening?
High quality troll post.
It's always the PM's fault. That's why they're called a "manager" because it's their job to "manage" things. It's just the analyst's job to analyze scenarios and present their findings so the PM can make a call. Even if the analyst shit the bed and gave them completely wrong info, the PM hired the analyst so it's still their fault for picking someone who could get it so drastically wrong and not have any sort of contingency in place to save/offset the portfolio they're overseeing.
It just makes sense. When Pershing's returns are trash, everyone says it's Ackman's fault and he did a bad job. No one says it's Pershing's analyst's fault
Even though the buck stops with the PM, analysts can feel accountable and take responsibility when a thesis is proven wrong or trade missed, at least to the extent they could've seen it. Its just a fact that some things will not work out and I think a good process should allow analysts to feel like they can be honest with themselves and learn from blow ups and misses, it creates a stronger analyst and is a good practice.
this gem of a question is asking whose fault is it if the analyst was *right* and the PM didn't listen - the PM or the analyst
Was the analyst pounding the table on the trade with so much conviction they'd bet their bonus on it, and the PM still didn't listen? I'd blame the PM. Did the analyst write up his idea or update and e-mail it to the PM and only passively mention on the floor, or not verbally at all? That is the analyst. FWIW, I'd bet that when analysts complain the PM didn't listen to their recommendation the situation was most likely the latter.
Question - a good process will have certain procedures in place to make performance/ fault attribution easier innit? For example, both the PM and the analyst writes out their theses, assigned probabilities and calls beforehand. When this situation happens, it'd be super helpful to refer to these written notes and see who's wrong. It's literally part of being a good investor - writing out your process so you can evaluate after making the decision and eliminate behavioural biases from the process.
The PM should write down why he chose to not listen to the analyst
"Never ever blame someone else for your own failures mate."- Sun Tzu
The right answer is that the buck stops with the PM. However, is that how it will actually play out in real life? Nope.
Analyst = short put, long tight call spread (but will probably get to try again somewhere else if they lose on the short put)
PM = long call, short put
Everyone in the industry is short puts. Analyst strikes are closer to ATM since the PM can fire you quickly before they get fired.
Sorry how is it the analysts fault because the PM didn’t listen? Did the PM make counterpoints that the analyst failed to address, or was the analyst’s reasoning flawed? Or did the PM just say “no we’re not buying or selling”
If the PM doesn’t want to buy something and the analyst forces it in, that creates a great deal of career risk for the analyst.
As mentioned everything is the PMs fault. Also as mentioned many many times analysts play it safe from both sides. This all said certain management teams would blame both the PM and Analyst.
The PM, for lack of performance and automatically assume the analyst failed to do their job since the PM did not perfrom. This is why it is key for analysts to do their job, separate from PM views at times and if PM passed on idea1 cause their friend said xyz, analyst needs to just move on and understand the next idea is the focus and trust their PM learned from it.
Also it is common for an analyst to do a deep dive to disprove your friends thesis.
Assigning blame is an impossible and useless goal. PM should learn from it and acknowledge it, but just cause the outcome fell one in favor of analyst view doesn’t mean the PM decision was wrong necessarily - given the probability weighted outcome pre-ante. They should discuss how to be more accurate - if it continues to happen and process enhancements don’t fix it or PM continues to blame analyst for being ‘right’ but not pitching well, they shouldn’t work together.
Aut dolorem deserunt cumque placeat cupiditate autem dolor. Eligendi consequatur voluptas iste nam.
Sint aut eius iure rem maiores pariatur. Aliquam veniam aut beatae harum quisquam minus. Rem et qui praesentium delectus quibusdam. Et necessitatibus dolore et officia.
Beatae et deleniti dolorum ipsum at magnam velit. Quia pariatur ab et est harum assumenda. Et qui minima voluptas corporis vel sit eligendi.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...