I question whether investments is a real science, or even an art form, or a bit of both. I suspect it’s neither. Its not art in an aesthetic sense. It could be art as selling micorwaves could be an art. Before I became a Charterholder and didn’t really understand investments, I knew that alpha was a myth and didn’t exist. Very few people agreed with me and they were purists like me. Then I got lost in all the investment talk but now I am realizing how much I agree with my past self once again. Investments is all about sales and marketing. It’s the same money exchanging hands over and over. Whoever comes up with a new scam gets to keep the money until someone comes up with a better sales technique. It doesn’t matter what you are saying as long as you look good and confident saying it. Nobody wants to hear the truth. If you tell the truth then you become unpopular internally and externally. It starts with external clients. They don’t want to hear the bad news. I am talking about institutional here, not individual clients. So yeah we are in the business of brochures, and suits and sleek hair, smooth talking and using big words. Its not really like being a doctor or an engineer or an architect. Those people do something real for a living. But since it pays the bills rather handily, I will keep my job. For now.
You should start a hedge fund.
EMHdenied Wrote: ------------------------------------------------------- > You should start a hedge fund. i’ll invest only if you charge 3&30. otherwise 2&20 tells me you are not confident in your strategy.
But since it pays the bills rather handily, I will keep my job. For now. ~~~~~ what a relief! you had us scared there for a sec.
Investing is a special type of entrepreneur in a sense - looking at operations, business plans, strategy and cash flows to determine if investing in the company would be a wise idea (and becoming a shareholder/partner at the firm). It is an art and a science. It is art in that behind all the numbers, reports, words and recommendations, to see value - you must tie together the past results to prospective future performance. People aren’t machines and the human mind changes for a variety of reasons, causing fads to come up in companies, countries and economies. This may change a consumer’s attitude towards a product or company or cause an employee to leave a firm. The art of taking the seemingly limitless amount of information available and feeding it into a model, report or recommendation is one that only a select few have mastered very very well. If alpha did not exist, then the markets would be perfectly efficient. But in order for the markets to be efficient, people seek out alpha and close the spreads. - - - - - - - But, sure, investing can be similar to selling a microwave. Some financial firms have a set of tools and seek to sell these tools, use advisors to sell knowledge and experience of asset allocation through set rules, practices, etc. However, this isn’t the type of investing that interests me - I don’t want to sell ‘microwaves.’ I hope to the former (above) very well and constantly learn about the markets, people, companies and all the inter-related pieces.
Great original post. …and after all the slick hair, brochures and fancy finance words to dazzle the client we underperform the benchmark under the weight of our own expenses. 
Sigh. Well at least over my career, I have provided value. But it must be good for the soul to announce on a public forum that you are a charlatan.
If you can’t understand how the investment business creates value despite the lack of a stack of nice shiny new widgets produced at the end of each day, you’re in the wrong business.
good post.
“I knew that alpha was a myth and didn’t exist.” I used to agree with this until I read an articel in the FAJ. Investments are zero sum games, someone is getting screwed and somone is screwing them even after expenses. The problem is that it is extremely difficult to be the one consistently screwing the someone. And if the markets have shown us anything in the last six months is that they are far from perfectly efficient.
s23dino Wrote: ------------------------------------------------------- > “I knew that alpha was a myth and didn’t exist.” I > used to agree with this until I read an articel in > the FAJ. Investments are zero sum games, someone > is getting screwed and somone is screwing them > even after expenses. The problem is that it is > extremely difficult to be the one consistently > screwing the someone. And if the markets have > shown us anything in the last six months is that > they are far from perfectly efficient. Got a link to that article? Cheers.
s23dino Wrote: ------------------------------------------------------- > “I knew that alpha was a myth and didn’t exist.” I > used to agree with this until I read an articel in > the FAJ. Investments are zero sum games, someone > is getting screwed and somone is screwing them > even after expenses. The problem is that it is > extremely difficult to be the one consistently > screwing the someone. And if the markets have > shown us anything in the last six months is that > they are far from perfectly efficient. Investments aren’t zero sum games. Everybody is free to participate in the advancement and inovation of the world’s economies. Active management is a zero sum game. Someone must win and someone must lose.
Active management is a zero sum game in aggregate. But there are a lot of players. The question is whether you can consistently be on the winning side of all the players. Choosing investments randomly, you will get - on average - the same performance as an equally weighted index fund. But maybe you have a system that exploits other players’ weaknesses… this seems to be why most active managers emphasize the importance of a disciplined investment process… one of the biggest weaknesses of ordinary investors are the psychological strains of winning and losing. A disciplined process will tend to eliminate those aspects. The only problem is that in severe crises “the market can remain irrational longer than you can remain solvent.”
needhelp Wrote: ------------------------------------------------------- > Investments is all about sales and marketing. It’s > the same money exchanging hands over and over. > Whoever comes up with a new scam gets to keep the > money until someone comes up with a better sales > technique. It doesn’t matter what you are saying > as long as you look good and confident saying it. How can you go through the CFA program and have this train of thought - especially the last sentence? Bad experience at the office?
On zero sums games, it depends on the investment class. FX trading/investment, for example, is a zero sum game since there is there is no way one currency can appreciate without being at the expensive of another, since their only value is relative. Equities are a different story since they are based on the expected earnings of the firm, which does evolve over time as business becomes more efficient and new technologies develop.
juventurd Wrote: ------------------------------------------------------- > On zero sums games, it depends on the investment > class. FX trading/investment, for example, is a > zero sum game since there is there is no way one > currency can appreciate without being at the > expensive of another, since their only value is > relative. Equities are a different story since > they are based on the expected earnings of the > firm, which does evolve over time as business > becomes more efficient and new technologies > develop. True. Good point. Some would agrue that currencies aren’t true investments because there is no expected return.
Had a bad sandwich at lunch yesterday and grew a conscience. Oh and it was not a memo but a mission statement. It was a mission statement. I guess my point was that its all about creating value. In a lot of so called ‘investment opportunities’ there is no value created. Rather the overall value stays the same, but money exchanges hands. I feel that we have been stagnated for a while in terms of creating value. All the various bubbles of the last decade point to that. In other words the size of the pie has stayed the same, just that the slices have been cut large or small and given to people who were better marketers. We haven’t really increased the size of the pie. I like to think of thing in terms of basic economics. That could be the problem.
Fremantle Wrote: ------------------------------------------------------- > s23dino Wrote: > -------------------------------------------------- > ----- > > “I knew that alpha was a myth and didn’t exist.” > I > > used to agree with this until I read an articel > in > > the FAJ. Investments are zero sum games, > someone > > is getting screwed and somone is screwing them > > even after expenses. The problem is that it is > > extremely difficult to be the one consistently > > screwing the someone. And if the markets have > > shown us anything in the last six months is > that > > they are far from perfectly efficient. > > Got a link to that article? Cheers. Yea I have the article but no link, it was an article by Sharpe actually.
create value? investments don’t create value the way an inventor/engineer/doctor do. Investments are about chasing the higher returns: re-distributing money to where it is best utilized. Most investments involve buying low and selling high with some risk involved. The trade-off for the risk is possible profit. Nothing created at all.