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Money
managers have served pharaohs, kings, emperors, popes, and
merchant traders - and now are available to average investors.
One of the most significant modern developments in money management
was the creation of the "Prudent Man Rule" in 1830, setting
a standard that managers must "conduct themselves honestly and
discreetly and carefully." A major distinction between types
of money managers is between the 'pass-through intermediary,'
who bears no risk on the client's behalf, vs. the 'risk-taking
intermediary,' who guarantees certain results and pays the consequences
for non-performance.
Among
the important money management concepts discussed in this overview
are Market Portfolio Theory; 'beta' measurements of volatility;
Capital Asset Pricing Model; Random Walk / Efficient Market
Theory; and passive management / index investing. Also discussed
is how to select a money manager, including a self-assessment
of risk tolerance and an emphasis on clear
communication.
Mutual
funds were born in America in 1924, with the incorporation
of the Massachusetts Investor's Trust. Combining the features
of professional management and portfolio diversification, mutual
funds grew in popularity among small investors looking for convenient
access to different investment markets. In the 1970's, the advent
of the no-load mutual fund changed things forever. By 1990,
there was more money in mutual funds than in savings institutions;
by 1996, there were more mutual funds than stocks on the New
York Stock Exchange. Great mutual fund pioneers have included
T. Rowe Price, John Templeton, John Neff, Peter Lynch, and
Howard Stein.
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