Ideally, all available information pertinent to a stock selection decision will be implemented in timely BUY, HOLD or SELL decisions and actions. But differences in the criteria used to select stocks often result in conflicts that delay such decisions and actions, hence result in a potential loss of predictive information. Because investors often feel committed to securities they have already bought, and because the universe of potential BUY candidates is much vaster than that of potential SELL candidates, conflicts are much more likely to cause selling bottlenecks than buying bottlenecks. Conventional methods of reducing conflicts in organizations--including socialization and political agreement--generally increase delays in putting information to use. Use of explicit selection models and organization by specialized subportfolios may be able to reduce conflict while minimizing time delays. The result would be better management of conflicting criteria, more efficient use of information and better portfolio returns.
Read the Complete Article in Financial Analysts Journal
Financial Analysts Journal
CFA Institute Member ContentPublisher Information
Association for Investment Management and Research
6 pages doi.org/10.2469/faj.v50.n2.49ISSN/ISBN: 0015-198X
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