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Rekenthaler Report

DFA Is Paying the Price for Its Conviction

However, the company's difficulties will likely be short-lived.

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The Middle Lane
Fund investors tend to be attracted to portfolio managers who profess conviction in their beliefs. Portfolio managers indulge that desire. Attend any investment conference, and you will hear managers relate stories about securities that were once unloved by the rest of the marketplace but which brought their funds profits because the managers maintained their faith.

Those tales are mostly fantasy. In reality, investors quickly become spooked by below-average results. They might hold their losing fund rather than sell it, thereby convincing themselves that they did not make a mistake (a mindset called the disposition effect), but they won't send that investment manager additional assets. Conviction is appealing in theory but painful in practice.

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John Rekenthaler does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.