I wouldn’t put it on my resume. If you get the interview, you will have ample time to discuss these matters. I just don’t get how ppl can talk intelligently about stocks without owning them.
FrankArabia Wrote: ------------------------------------------------------- > I wouldn’t put it on my resume. > > If you get the interview, you will have ample time > to discuss these matters. > > I just don’t get how ppl can talk intelligently > about stocks without owning them. a lot of money managers are good and dont’ need to trade their own money. trading your own money creates an emotional bias as well
I disagree. Personally I think it’s better to not invest unless you really know what you’re talking about. I don’t believe trading and following a portfolio really makes you more knowledgeable or better at it, rather I feel it’s the other way around, you should be extremely knowledgeable before you invest even a dollar of your money.
Palantir Wrote: ------------------------------------------------------- > I disagree. Personally I think it’s better to not > invest unless you really know what you’re talking > about. I don’t believe trading and following a > portfolio really makes you more knowledgeable or > better at it, rather I feel it’s the other way > around, you should be extremely knowledgeable > before you invest even a dollar of your money. we’re on the same page. definitely do your due diligence. But at this point, we on here are all amateurs, but to get better, you must practice. you don’t get into the ring until you learn the basics, but you have to spar. its been said that you don’t truly know the company until you invests in it. I can certainly say that with the companies I have invested in, I learned a lot about them AFTER my purchase.
So most of you guys/gals don’t have personal brokerage accounts? I do and invest 20% of my after-tax income. I thought that would have been the norm around here I guess not? I enjoy researching companies and doing my own due dilligence. I don’t see how this could be seen as a negative on my resume?
If you read on someone’s resume “generated x% on personal account”, it tends to come off too hard like you’re trying to show off. idk, that is just me. in an interview, problably within 10 mins, you should be able to sense whether someone invests money seriously or just acts like it.
While I’m not against the idea of investing before entering the industry, there are few points I like to clarify between running a PA and running an institutional portfolio. 1. Investment is fun when you’re running your money and it is stressful when you are running other people’s money. I slept nicely through GFC but I couldn’t sleep too well in the last year because I’m afraid waking and losing $30mil overnight… 2. When running an institutional portfolio - idea is important, risk management is essential but OPERATION is critical. Which broker to use, what price can you get… a saving of 1bps is probably $1m on P&L. Risk management may come first for some PM (especially long only managers), that is the way to explain your under-performance to clients. 3. Process, process and process… There are 100+ equity funds in town (where I live) if not more. I can only think of a handful of good stock-pickers but many good investment professionals. Most of them are good at crafting investment process - a source of REPEATABLE risk-adjusted return. My 2c.
johnnyBuz Wrote: ------------------------------------------------------- > So most of you guys/gals don’t have personal > brokerage accounts? I do and invest 20% of my > after-tax income. I thought that would have been > the norm around here I guess not? I think that the average person-on-the-street fancies that they have a wealth of knowledge and can easily outperform Wall Street equity analysts. I suspect that this sentiment is actually much less common among CFA charterholders. All of my money is with Vanguard.
Buying high beta in a bull market (like tech, or housing stuff) makes people think they’re brilliant, because they see the market go up 10% and they’re up 20% and don’t realize that their outperformance is simply because they have a beta of 2. There was some research and survey work done about portfolio managers with MBAs with concentrations in finance and no CFA charter versus people with CFA charters (I don’t know if they separated out people with both, but they should have). If I remember right, they found was that average performance (risk-adjusted, I believe) was similar, but that the CFA folks ran substantially more conservative portfolios. It would be important to look at this over the entire cycle, though.
yuoska Wrote: ------------------------------------------------------- > While I’m not against the idea of investing before > entering the industry, there are few points I like > to clarify between running a PA and running an > institutional portfolio. > > 1. Investment is fun when you’re running your > money and it is stressful when you are running > other people’s money. I slept nicely through GFC > but I couldn’t sleep too well in the last year > because I’m afraid waking and losing $30mil > overnight… > > 2. When running an institutional portfolio - idea > is important, risk management is essential but > OPERATION is critical. Which broker to use, what > price can you get… a saving of 1bps is probably > $1m on P&L. Risk management may come first for > some PM (especially long only managers), that is > the way to explain your under-performance to > clients. > > 3. Process, process and process… There are 100+ > equity funds in town (where I live) if not more. I > can only think of a handful of good stock-pickers > but many good investment professionals. Most of > them are good at crafting investment process - a > source of REPEATABLE risk-adjusted return. > > My 2c. This.
does it seem at all odd that with all this “process” and “operations” that the vast majority of PMs underperform the market? My guess is they focus on all these things instead of understanding businesses. worrying about Alpha, Beta, and quarterly performance is problably more of a drag than anything. To Wendy, most WS/BS equity analyst have a wealth of knowledge about their companies. But with regards to their opinion on where the stock is going to go, and even where the company is going to go, ignoring their opinion is the safest strategy. Most have a huge bias that is against the interest of a serious investor. They’re a source of information, not a substitute for thought in most cases.
Yeah that’s a good observation. If you think about the things that are important for the sales cycle to institutions such as 1) rigorous process 2) fitting in style boxes 3) focusing obsessively on risk management 4) spending all of your time marketing, and then contrast that with the skills of the most successful investors such as 1) counter-consensus thinking 2) willingness to take risk 3) thinking outside the box 4) being passionate about their profession and working hard, it’s pretty obvious why the institutionalized money management business consistently under-performs. It’s a perception versus reality thing.
Dwight Wrote: ------------------------------------------------------- > Yeah that’s a good observation. If you think > about the things that are important for the sales > cycle to institutions such as 1) rigorous process > 2) fitting in style boxes 3) focusing obsessively > on risk management 4) spending all of your time > marketing, and then contrast that with the skills > of the most successful investors such as 1) > counter-consensus thinking 2) willingness to take > risk 3) thinking outside the box 4) being > passionate about their profession and working > hard, it’s pretty obvious why the > institutionalized money management business > consistently under-performs. This, and I would add, decision by committee. If you look at most of the best investors in the world, they have people who feed them information, but they make the final call. Or it may be a partnership. But it’s not 10 people rehashing ideas until they find the lowest common denominator, as is often the case with big institutional money. (This overlaps #2 in both lists to an extent.)
This is a little off topic, but I’ve never really been impressed with the whole “eats their own cooking” thing. Finance theory tells us that we should diversify our risks. So people who invest stocks for a living have human capital that is very equity-like, suggesting they should diversify away from equities, but “eating their own cooking” only adds more equity risk. So basically their livelihood depends on equity returns and they are betting their personal wealth on that as well. They are doubling up on their equity risk. And this is the manager I should be trusting my money with?
its a well known fact those who are personally committed to their portfolios outperform those that don’t. At least all value guys I track invest the bulk of their net worth in their own funds/companies. they have outperformed and done very well. you guys know the names. it makes sense doesn’t it? I don’t understand your argument. doubling their equity risk? they’re personally committed, not through options, but by their performance strictly. I think that is great.
For marketing, it’s great to be able to say I’m so confident in my method that I have essentially all my personal wealth in it. And it is true that if you don’t trust your own investing skill, why should anyone else trust you with it. On the other hand, your portfolio skill is probably restricted to a particular expertise or investing style. Frank’s a value guy, it’s clear. That’s good, but how do you do the fixed income part of it. Do you have a real estate part of your portfolio. Do you do commodities, other than commodity stocks. From a portfolio standpoint, it isn’t good risk management or efficient to have all of your assets in one style, be it value, statistical arbitrage, or whatever. A more nuanced investor would start to ask you how much you really understand about portfolio construction if you are managing your personal assets that way. And if you can’t construct your personal portfolio efficiently, are you constructing their value portfolio efficiently. For an entrepreneur, they don’t really have that much of a choice but to put most of their assets in their business. And it is less risky than an outside investor putting assets in their business because the entrepreneur actually does have a lot of input and control over the business performance, even if it isn’t 100% control (because the economy and response of customers is not fully in their control). But for an asset manager.
FrankArabia Wrote: ------------------------------------------------------- > its a well known fact those who are personally > committed to their portfolios outperform those > that don’t. At least all value guys I track invest > the bulk of their net worth in their own > funds/companies. they have outperformed and done > very well. you guys know the names. > > it makes sense doesn’t it? > > I don’t understand your argument. doubling their > equity risk? they’re personally committed, not > through options, but by their performance > strictly. I think that is great. I had to run off to a meeting earlier, so I don’t think I was able to fully explain my position. I understand that investing in your own fund/style represents a high level of confidence. I just don’t feel that “confidence” is the best indicator of potential for a manager to outperform. We turn our noses at 401(k) participants who put a lot of their retirement money in company stock. They were basically doing the same thing - exposing their nest egg to the same risks as their livelihood. But they were confident in their own company because they felt they understood it better than anyone else. Why do we encourage this behavior from fund managers, who should in theory understand diversification of risk better than anyone else?
bchadwick Wrote: ------------------------------------------------------- > For marketing, it’s great to be able to say I’m so > confident in my method that I have essentially all > my personal wealth in it. And it is true that if > you don’t trust your own investing skill, why > should anyone else trust you with it. > > On the other hand, your portfolio skill is > probably restricted to a particular expertise or > investing style. Frank’s a value guy, it’s clear. > That’s good, but how do you do the fixed income > part of it. Do you have a real estate part of > your portfolio. Do you do commodities, other than > commodity stocks. From a portfolio standpoint, it > isn’t good risk management or efficient to have > all of your assets in one style, be it value, > statistical arbitrage, or whatever. A more > nuanced investor would start to ask you how much > you really understand about portfolio construction > if you are managing your personal assets that way. > And if you can’t construct your personal > portfolio efficiently, are you constructing their > value portfolio efficiently. > > For an entrepreneur, they don’t really have that > much of a choice but to put most of their assets > in their business. And it is less risky than an > outside investor putting assets in their business > because the entrepreneur actually does have a lot > of input and control over the business > performance, even if it isn’t 100% control > (because the economy and response of customers is > not fully in their control). But for an asset > manager. All investing is essentially “value”. You pay less than what you expect to sell for. My biggest restriction is time. I don’t do short term trades and I ignore short term performance (a huge drawback cause these things matter to ppl who give you money). As for diversifying into other asset classes, you do have a point. I’m not up on academic literature (which I don’t think adds a whole lot of value to investing) but I did come across some recent articles showing that diversifying into assets classes for the sake of diversifying does not add any real returns. Fixed Income. To me, not any different than investing in equities except its easier to value (by just a tad bit). When I find a fixed income security that can beat the returns (in my view) over the long term of equity securities at the time, i’ll be sure to snatch it up. The valuation for fixed income/bonds is not that different unless you’re going into securitization bonds where you have to have the skill of deciphering tranches etc. If you have any ideas, do share.
FrankArabia Wrote: ------------------------------------------------------- > its a well known fact those who are personally > committed to their portfolios outperform those > that don’t. That’s a great argument for why a fund company should force its portfolio managers to invest in the funds that they manage. But it’s not a valid reason for why any portfolio manager would want to do so. > I don’t understand your argument. doubling their > equity risk? they’re personally committed, not > through options, but by their performance > strictly. I think that is great. When Monger is talking about “doubling up on their equity risk”, he’s saying that it’s a bad idea to expose your income and investments to exactly the same risks. It’s one of the most prominent concepts in the Level III curriculum.
Wendy Wrote: ------------------------------------------------------- > FrankArabia Wrote: > -------------------------------------------------- > ----- > > its a well known fact those who are personally > > committed to their portfolios outperform those > > that don’t. > > That’s a great argument for why a fund company > should force its portfolio managers to invest in > the funds that they manage. But it’s not a valid > reason for why any portfolio manager would want to > do so. > > > I don’t understand your argument. doubling > their > > equity risk? they’re personally committed, not > > through options, but by their performance > > strictly. I think that is great. > > When Monger is talking about “doubling up on their > equity risk”, he’s saying that it’s a bad idea to > expose your income and investments to exactly the > same risks. It’s one of the most prominent > concepts in the Level III curriculum. I don’t remember the CFA curriculum anymore but it is not one of the most prominent (I wrote mine like 3 or 4 years ago). But thanks for clarifying. I see what he means but I still don’t agree. It’s shabby practice to not indulge in what you’re selling. If I lose people’s money, I should pay the price. I believe there has to be some downside.