A Real Life Example of Asset Management

During the dark ages of computers and asset management, the 1970’s and early 1980’s, there was a company that operated large ocean-going integrated tug/barge systems.

The tug engines were twin 5560 HP V-12 diesel engines.

There were 5 parts of these engines that were tracked.

There was an index card for each item and notations were made when any piece was changed.

The vessels had no computer systems, but the First Assistant Engineer brought a personal IBM type computer aboard. The Captain had purchased a Commodore 64, and was writing programs for it in Basic.

Each engine had a counter attached that gave cumulative operating hours. Each piece tracked had the engine hours at installation noted.

The pieces and guidelines for the change out of the pieces were:

Heads 10,000 hours, later changed to 12,000 hours

Right hand intake valve 3,000 hours

Left hand intake valve 3,000 hours

Right hand exhaust valve 3,000 hours

Left hand exhaust valve 3,000 hours

The above items were for each cylinder for both engines, giving 120 items to be accounted for.

The First Assistant Engineer wanted to create a program to track the data and find out the status of each part. He got bogged down in his program, however, and mentioned the problem to the Captain.

The Captain wrote a fast and dirty BASIC program that compared the engine hours at installation to the present engine hours for each item and gave a printout of the status of each item.

It took about 2 days to enter the data and write the program, which then ran through it all in about 30 seconds.

Conditions were, “OK”, if under the replacement hours, “Will need replacement in X hours” or “Overdue for replacement by x hours.”

They then discovered that the entire Port Engine was overdue by no less than 1000 hours and in some cases, quite a bit more.

This sent a shockwave through all Engineroom-related personnel.

Although the information had been entered on the index cards, no one had ever made any practical use of it.

So it was not enough to simply have the data. It had to be applied in a real world situation.

3. Learn the business of asset management yourself

It is not enough to simply have a general knowledge of the goings on of asset management. You also need to understand it clearly.

Some people may not give full control to their managers, but will sign anything that these managers give them without really understanding what the papers are saying.

Remember that although you have worked with the same person for years, or a friend of yours knows him personally, he or she can still be tempted to rob you of your money.

A common occurrence all too often is that the manager needs money for some reason, such as an unexpected expense, a new house or car, and so on.

So they call clients and try to get them to move investments from one family of funds to another, getting commissions for each move.

Asset management is a risky and cruel business. Make sure that you are prepared to stand guard over your investments like a vigilant bulldog. After all, it is your money, and you need to protect it.

Watch for hidden fees and other ways that an asset manager can cash in even if they are not growing your portfolio as well as you had hoped.

2. Make sure you are in regular (though not constant) communication with your financial manager.

A common mistake made by most people who hire asset management assistance is that once they get someone, they wash their hands of the entire portfolio.

DON’T. Show the person you hire right from the outset that you want to take an active part in managing your assets. This will prevent any temptation to commit wrong-doing or deception because they know that you are monitoring your money carefully all the time.

Do not give the full control to the manager when it comes to making investment decisions. The final say should ALWAYS be yours.

So before investing in something, the person you hire should first present you with the background of the investment, and if possible, show other alternate investments that are similar to it, so that you will have a chance to compare.

Set a general guideline for all investing. An example of this would be, “I can’t afford to get into anything that has share prices that can vary. Steady income with no risk to my principle is a must.”

There is a big difference, for instance, between investing in Bonds and getting into a Bond Fund. The Bond will have a predictable return with no risk to your principle.

A Bond Fund will have shares with share prices that can go up or down. In an actual case with such a Bond Fund, the interest was $1000 per month, and there was a quarterly capital gain of $1000, but the share prices were dropping, and the actual value of the fund was static. Therefore, no actual gain was being made.

So do stay in contact with your asset manager, but don’t err on the opposite side of washing your hands of it, and trying to micromanage the process and call them 10 times a day. Be involved, but not too interfering. Set your rules, stick to them, and make sure your professional does too.

1. Choose your manager wisely

When hiring an asset manager, make sure that you know them in some capacity. If you don’t know anyone personally, ask people to recommend managers that they are happy with.

When asking for recommendations and referrals, do a little background check first. Ask how many years the person is working for the person who made the recommendation. Ask for his accomplishments, qualifications, and his track record over the years. A good performance for one person may not be good for another.

Ask for the contact information of at least 3 other people, and call them randomly. Also make sure you search for this person on the internet.

Do not just be contented with one referral. Get recommendations on several people, and then ask them the same questions in your interview. Then draw up a chart so that you can compare each one to the other in an organized and meaningful way.

When evaluating their expertise, look both on the paper and in person. Remember that these people are very good with charming their clients. Therefore, it’s good to base your decisions also on something that is really concrete. This is not to say to ignore your gut instinct, but just to make sure that you have all the facts.

Asset management is a concept that many people are wary of. Although they do want their hard earned money to beget huge yields and interest, people are not always comfortable with the idea of other people managing their money.

Add to these doubts are the number of stories circulating of investors losing their money because of companies that have folded during the dot.com boom and the latest round of failures on Wall Street, and you end up with a lot of people storing their cash in a mattress.

Apparently anyone who sells a person safe is doing well, but the rest of us are in despair.

But the truth is, asset management need not be something to be afraid of. In fact, it can be pretty rewarding financially, once you learn the ins and outs, and carefully and strategically spread your money across different investment products.

This will be better than putting your money in banks where the yield is not even enough to combat the inflation rates of the currency and the rising costs of living (consumer food prices went up over 10% in the first 6 months of 2008).

When done the correct way, your money can work hard for you to grow and grow, in order to be there for you when you choose to retire.

The trick is to find the right asset investment manager, or the right research and skills to do it yourself, and be pro-active about your asset management.

What follows are some lessons on how to start and survive asset management, in order to keep growing your nest egg to meet your investment and financial goals.