There are plenty of stories about managers who are recommended by the consultants on the grounds that the managers pay the consultants the biggest fees. Instead of firing the stock picker who happens to be performing below the mean in a given year, General Mills gives him more money, taking from highest ranked performer. As a result, General Mills has produced one of the best long-term records with 17 percent annualized equity return over the 15 years ending in 1992. Every investor, whether individual or institutional, hopes that it can be the exception and can beat the averages. Of course another of the incentives for a minimal sense of ownership by money managers is short term self-interest.
Active trading produces immediate transaction costs.
Monitoring involves the commitment of resources for gains that are not immediately quantifiable, with the possible exception of shareholders who are large enough and aggressive enough to underwrite contests for control. In the longer term, this has involved a high price for the business system as whole. Transferability has had consequences for corporations as well. It means that the interests of shareholder and managers are based on incompatible premises. The investor will want to sell at the first sign that the stock may have reached its trading peak, whereas the manager wants stable, long-term investors.