Thursday, 9 February 2012

Window Dressing

Window dressing is the practice of making a portfolio look good for quarterly reporting purposes.

Some managers will deliberately buy shares of the current quarter's best market performers and sell shares of significant under-performers in order to dress up the portfolio's appearance in the quarterly report to clients.  They also may sell positions with significant unrealized losses so that clients will not be reminded of major mistakes month after month.

Such behavior is clearly uneconomic as well as intellectually insulting to clients; it also exacerbates price movements in either direction.  Even so, as depressed issues drop further in price, attractive opportunities may be created for value investors.

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