Here is an interesting story from the NY Times discussing how the experience (in this case age was used as a proxy for experience) was directly related to their propensity to invest into Asset bubbles.
(From the NY Times) "….two finance professors have looked at the performance of mutual fund managers during the technology stock bubble, and found that it was indeed the younger and less experienced managers — generally those under 35 or 40 years old — who leaped onto the Internet bandwagon with the most enthusiasm — and then suffered the biggest losses.
The authors, Robin Greenwood of Harvard and Stefan Nagel of Stanford, found that in 1997 — before the bubble really got going — younger, and presumably less experienced, mutual fund managers tended to be a little less invested in technology stocks than their older colleagues. “But leading up to the peak in March 2000, younger managers strongly increase their holdings of technology stocks relative to their style benchmarks, while older managers do not…
“...It seems like age and experience do have a role,” Mr. Nagel said in an interview. The effect of a lack of experience, he added, “might even be stronger for people with less formal training in investing.”
The evident explanation for this, the professors conclude, is that “the trend-chasing behavior of young managers reflects their attempts to learn and extrapolate from the little data they have experienced in their careers.”
To be sure, callow and inexperienced youths were far from the only ones who extrapolated from recent data to find theories of a new economy believable. Alan Greenspan was 74 and had been chairman of the Federal Reserve board for 12 years when, on April 5, 2000, he embraced the new economy and pointed to profit forecasts by Wall Street analysts as a reason to expect the tech boom to continue.”
It's interesting stuff but I have to wonder if the tech bubble was the best data set to use, because in this particular instance younger people were more likely to be tech savvy and therefore more likely to have confidence in tech companies. The study might actually be more of a study of the investing behavior of earlier adopters, rather than impact of age and experience on investment performance. It would be especially interesting to review the performance of technology related funds vs. the age of the fund manager over that time period, because technology fund managers are going to be tech savvy regardless of their age.
The above criticism aside the study is still interesting because nearly all fund managers were
investing heavily into tech stocks, and whether they were 30 or 50 they were generally all making decisions based on the same information. I'm sure that once you adjust for issues related to technology adoption you'd still find that the funds run by the more experienced managers performed better, it's harder to get caught up in a bubble when you've already survived a couple.
In the end perhaps it's not so much a question of experience as it is having the knowledge and foresight to avoid calamity, and while that's something that often comes with age it's definitely not an absolute. The most Sr. consultant on a project I was working on around October of 2000 told me that the NASDAQ would completely recover (and then some) by January of '01, and that I should put as much money into QQQ as possible even if it mean taking out a HELOC or cash advances from my credit cards.
I ignored his advice and bought REITs instead, and used the profits from those REITs to pay my bills when I was later laid off from that project due to budget cuts.
