Why managers need to have 'skin in the game'

Alignment of manager necessary to gain trust

The investment management business arguably has more luck involved than any major sport, but more skill than the pure luck domain of a slot machine.

From an individual stock perspective, macro news (such as weather, government, regulation) would play the role of luck, negatively affecting price, while business fundamentals (such as improved margins and increased demand) reflect management or company skill. Skill is harder to identify than luck, but there are various factors that should be considered. Equities, for example, are long-duration assets and therefore in making judgements about skill, it is appropriate to align the timeframe to the assets as much as is feasible. In short, in searching for skill, it is critical to look over ...