It was recently brought to my
attention that it's been ten years now since I started my first full-time job
in the investment industry. More experienced investors might not think this is
a very long time, but it feels like an eternity to me considering my current
level of understanding compared to what I knew when I first started out.
Here a some observations about my
time in the world of investments from the past decade:
Everything is getting faster. This includes
information flow, trading, instant feedback and analysis and market cycles in
general. I've also noticed that performance updates can no longer wait -
investors want up-to-the-minute reporting and the ability to track their market
value in real-time. Time frames continue to shorten.
What college you went to doesn't
matter. The only thing a top tier college is good for is getting you your first
job through connections. But even that's diminished these days to some degree
because technology makes it easier than ever to network if you know what you're
doing. I went to a small private Division III school without much of a finance
program. Right out of school I felt this was a disadvantage, but looking back
on it now it was actually a huge benefit because I ended up basically being
self-taught. I didn't start out with any preconceived notions or biases about
the way the markets work based on textbook theories that are more or less
useless in the real world.
First impressions can be
misleading. I've found that the people that absolutely wow you right off the bat are
usually over-compensating. The ones that try to convince you that they have
everything figured out are not the people you want to be listening to in this
business.
Career risk is
highly under-appreciated. I could come up with a laundry list
of the reasons for poor market behavior from professional investors. Career
risk would be at the top of that list. Incentives matter a great deal more in
the decision-making process than most realize.
Everyone is conflicted in some way. It's
impossible to avoid conflicts of interest in the financial services industry.
It is a business after all. The trick is to understand how incentives drive
people's actions and look for those firms and individuals that are up front and
honest about any potential conflicts.
Always have a spare suit coat in your
office. This one has saved me a few times with last minute (or forgotten)
meetings. Also, never wear a blue shirt with a white collar. The Michael
Douglas from Wall Street shirt just screams, "Would you like to buy an opaque
annuity with ridiculously high fees?"
You get to know people better over
dinner or drinks. I've always found the standard interview process to
be fairly useless. You will always learn more about potential hires or
employers by going out to eat or getting a drink together than you do from a
formal, sit-down interview. HR-type interviews are too stuffy and rehearsed.
It's good to have an outlet. Whenever I have the
time, I try to workout at lunch. In finance you spend most of your time in
front of a computer, in meetings or on conference calls. It's helpful to
stretch your legs and take the occasional break to re-charge. I find I get the
majority of my best thinking done during this time. My other outlet is writing,
which I wish I would have started sooner.
Communication is a highly under-rated
skill. I always assumed my analytical skills would help set me apart in
this business. While you have to have an analytical mind to succeed in finance,
without the ability to communicate with a variety of audiences - clients,
colleagues, bosses, potential employers, etc. - even top-notch analysis
can get lost in the shuffle.
There's always going to be someone
smarter than you. While it's easy to mock the financial industry for
their poor forecasting abilities and potentially damaging advice, there are an
insane amount of brilliant people working in finance. At first I was always in
awe of the smartest person in the room. But it's worth acknowledging that
intelligence without the requisite common sense does you no good. Brilliance
does not always translate into success in the markets, and in fact, it can be
to your detriment if it leads to extreme levels of overconfidence.
The best people in this industry are
often overlooked. Many great investors out there are
overshadowed because they aren't making a never-ending series of outlandish
predictions, they don't resort to scare tactics, and their main goal is not to
push unnecessary products on unwitting clients.
Information is everywhere but people
still choose to ignore the evidence. There are academic research papers
and real world case studies on nearly every investment strategy known to man
yet many investors still choose to wear blinders and only read that which
agrees with the way they do things.
Self-awareness is essential for
long-term success. I can't remember exactly when it was that I had my
aha moment, when I first really "got it." But it's made me a more
clear-headed investor. When I say "got it" I don't mean that I
finally figured everything out that there is to know about the markets. Getting
it to me meant that I understood that I would never truly have it all figured
out. Learning would be a life-long pursuit but there was never going to be a
time when I could say, "I'm finished. I've figured out everything there is
to know about the financial markets and how to be the perfect investor."
I think it was a combination of
watching people much smarter than me fail at the game of investing over and
over again and learning about the importance of human psychology on our actions
and decision-making abilities. All of these cognitive biases I was reading
about I had witnessed first-hand, either through my own actions or by watching
other market participants.
The markets can be a very humbling
place, but it's not until you're willing to show humility that you can start to
see lasting improvements in your results over time. It can be extremely
difficult for very intelligent people, with years of higher education and
professional designations under their belt to be completely honest with
themselves about the markets.
The markets are hard. Slowing down is
important. A legitimate decision-making process that reduces the impact of your
emotions is essential. But none of this is possible without the self-awareness
to admit your own limitations.
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