Veteran hedge-fund manager James Owen explores how cowboys lived up to certain essential standards in his book "Cowboy Ethics: What Wall...

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Veteran hedge-fund manager James Owen explores how cowboys lived up to certain essential standards in his book “Cowboy Ethics: What Wall Street Can Learn From the Code of the West.”

What mattered in the Old West, Owen writes, was the kind of person a cowboy had become, “what kind of man he was when things got rough, or when nobody was looking.”

While Owen is trying to teach Wall Street a better way to live, his work resonates with individual investors, too, as it represents the kind of integrity shareholders want in their investment process.

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Last week, this column looked at the first half of Owen’s Code of the West. Today, we’ll saddle up for his five remaining guidelines, with an eye on how investors might use them to ride happily into the sunset of the fund scandals.

When you make a promise, keep it.

Investing is all about promise. The investor is trying to achieve the full promise of saving; the fund firm is trying to live up to the promises it makes to attract new shareholders.

No firm makes actual promises about specific returns, and the market simply doesn’t allow a fund to always achieve the strong positive returns investors feel entitled to. But a fund company should always be true to its word, whether that involves sticking with a specific strategy instead of drifting toward what’s hot, or simply putting shareholders’ concerns first. The firms tainted by the rapid-trading scandal clearly forgot that last one.

Ride for the brand.

Owen notes that once a cowboy tossed his bedroll into an outfit’s wagon, he put the group’s needs ahead of his own. That did not mean blind obligation, however; allegiance and respect had to be earned.

Individuals too often throw money in with a firm and hook on forever. While loyalty is good — studies show that investors who jump around too much tend to shoot themselves in the foot financially — blind loyalty and fear of change explain why at least $1 trillion of Americans’ money is in funds best described as “lousy.”

If a firm doesn’t have a brand you can ride with, it’s just a matter of time before you pick up and start working elsewhere. You’ll be better off making that change today.

Talk less and say more.

Fund companies routinely fail here, and investors let them off the hook.

Too many companies bury meaningful disclosures in legalese, failing to make concrete statements unless they are couched in terms that hedge against disappointment.

Smart fund managers say precisely what they mean, issuing clear statements that take responsibility for shortfalls and that don’t get overly excited about success.

Remember that some things aren’t for sale.

One of the most interesting things to come from the scandals is the punishment meted out by investors. Fund firms that had poor performance before making headlines (think Janus and Putnam) were shot full of redemptions; firms with a better recent track record barely saw a decline.

Know where to draw the line.

Fund companies need to pull the plug on funds that have failed to produce the results management originally anticipated. Firms let funds linger, but that is no excuse for shareholders sticking around.

For individuals, “investing with integrity” means developing personal standards and then sticking to them. There’s a big difference between going along for the ride and being taken for a ride, and once an investor thinks that line has been crossed, it’s time to go.

Chuck Jaffe is senior columnist at CBS Marketwatch. He can be reached at or Box 70, Cohasset, MA 02025-0070.