Fruit Basket Paradox

Abstract

Investment management which is worth USD 70 trillion can be seen like a fruit basket. The job of the fund manager was to select the fruits from the market and sell it to the investor. Global pensions are a part of this pool. Despite the important role fund managers play, there is a lot of confusion regarding financial theories and lack of standardization between investment management practices. Investment solutions are primarily for a rising market. There are limited solutions for a falling market. The investment solutions are primarily equity focused. There are no standardized metrics to look at all asset classes together i.e. equities, commodities, bonds, currencies, alternatives. Academic thinking is also very equity focused. ‘Size’ the most important factor explaining stock market returns is not understood well. The lack of standardization, solutions for an up trended market, equity skew is the ‘Fruit Basket Paradox’, a term that explains the fragmented nature of financial theories and the circular argument that rots the investment management business today.

Keywords: Size, Effect, Investment, Management