The Investor

By Hanes, Kathryn | Global Finance, September 1999 | Go to article overview

The Investor


Hanes, Kathryn, Global Finance


BIO 54

Providence College, Rhode Island, degree in economics

Employment histroy:32 years at BankBoston, 22 years as CIO

Career highlights: Developed an asset management business of less than $3 billion 20 years ago into a $33 billion business today. Started the $10 billion Boston 1784 mutual funds in 1993

If curiosity killed the cat, optimism-it seems-might kill the market. That's the warning being issued by seasoned investor Ned Riley, chief investment officer of BankBoston. A former steelworker who started his career at BankBoston 32 years ago, Riley is concerned by the seemingly unbridled optimism of today's younger breed of investors.

"It makes me wary that there are so few bears," he says. "I would prefer investors to be a little more anxious, a little more concerned, and a little more pessimistic. But the new investors, with few exceptions, remain incredibly optimistic, and that is a self-feeding principle:'

Riley has a theory to explain investors' enthusiastic confidence in the market. He calls it the "principle of 85."

It goes like this: 85% of all US mutual fund holders were new as of 1991 (the same is probably true globally); 85% of the holders of these funds reckon the stock market will continue to grow at 15-25%; 85% of US stockbrokers did not experience the crash of 1987.

"Your grandfather may have experienced the crash; your father may have experienced the crash; but until you've experienced the crash, you are not experienced," he warns. "The older generation is cautious, is nervous, is concerned, has been through two or three market cycles and understands that what goes up must come down. The average experience of a fund manager in the United States is three and a half years.To find managers who have been tested by a bear market or a recession, you have to go back to the last sustained corrective market, which was back in 1990 in the United States."

But it's not just the folly of youth. …

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