pawn Wrote: ------------------------------------------------------- > How does the CFA candidate feel about the younger > or similar age person in the industry who has > gotten “lucky” and are currently in a front office > investment position… Pawn, let’s fast forward a few years and talk about when luck will REALLY have an impact on your career. You and another person (we’ll call him Chumpy McChumperson) are investment managers. Let’s give you the benefit of the doubt and assume that you are clearly more talented, more diligent, harder-working, and better credentialled of the two investment managers. You each manage about $1B of institutional money. In a given year, McChumperson crushes your portfolio. He picked most of his stocks based on which were in the news more, which ones had the best investor presentations, and based on the amount/quality of schwag he was given at their annual shareholder meetings. You picked your stocks based on sound fundamental research and attempting to buy quality businesses at a discount. Unfortuantely, some of the stocks and sectors you were focused on went nowhere. Chumpy is promoted to a corner office and given two more portfolios to co-manage. You are demoted back to a senior analyst and told that you will no longer have final say on buy/sell decisions - mainly just doing due diligence for the other PMs. Are you a worse portfolio manager than McChumperson? OF COURSE NOT. But variance is part of life. In any given short time frame, there will be a number of less qualified people, doing crappy work, who somehow stumble upon great results. The only thing - the ONLY thing - you can change about short term results is how you deal with them. Man up and accept the variance that life deals you, amigo. If those people fluking front-office positions don’t deserve to be there, have faith in the fact that they’ll be on earth for about 80 years. Eventually, for most of them, their results will reflect their abilities.
Supersaface- I agree with your long term argument, but come on, most people just want to cash in for a few years anyway and get out. During the crisis I saw exactly this happen, people who rode the wave making millions then got crushed and “retired” with the millions they’d socked away. One portfolio manager friend of mine is now getting a masters in international relations in Barcelona (he’s australian) and in reality is just having the time of his life. He saved up 7 million by the time he was 35, more money than he needs for a really long time. My point is that there is a huge agency problem in finance, to get one of these jobs is a free call option. While the ethics of the Cfa disagrees with this, everyone I know in this industry sees it that way in reality. It sure beats grinding out slow and steady returns. It sure beats studying for the CFA. Pawn - I don’t disagree with really anything you said. Like anybody I resent people more fortunate than me. Still I don’t think there is much use in that unless it drives you to succeed. I more just wanted to point out that qualifications are not that important compared to other things and that hard working people frequently are unrewarded. I live in India. While I only make a low six figure salary, kts a hell of a lot more than the people around me. Trust me, it could be worse. think about all the people underneath you who resent you.
But supersad’s example does not depend on career length. You can easily change the story to say that we are observing the two managers over 10 years or 5 years. In fact, shorter observation periods will probably have larger variations in unexplained returns from their portfolios. Also, I would assume that there is some randomness in getting a portfolio management job to begin with.
ohai Wrote: ------------------------------------------------------- > In fact, shorter observation > periods will probably have larger variations in > unexplained returns from their portfolios. > > Also, I would assume that there is some randomness > in getting a portfolio management job to begin > with. True on both counts. The shorter the observation period, the more likely that randomness is responsible for the results. And yeah, there’s some randomness in getting a PM job, of course. I did like ChickenTikka’s post about asset management jobs having a huge agency problem and being something of a call option. The payoffs are certainly not symmetrical. If a manager underperforms, they’re paid a lot of money for a few years (maybe even enough to retire very early) and then the leave the business with a good deal of cash accumulated. If a manager is excellent, then they stick around the business longer, make more money, and leave when they choose to stop working. The first (underperform) scenario is bad, but is it much worse? No, not really. My point is that measured over a lifetime, most peoples results will reflect their work ethic and ability. Notice that I said “most peoples” results. There are exceptions. Some C students will become presidents. Some terrible candidates will pass the CFA exams. And some students from lesser schools with subpar grades and lousy work ethics will fluke prestige jobs. You can definitely tell when you meet some of these people. I don’t hate them, but I do take solace in the fact that: -They’re usually the exception -They usually can’t hack it. We all know the stories of little Johnny, who couldn’t get into honors math class, but then the teacher reneged when Johnny’s mom threw a fit. Well, that’s not fair, but I have faith in the fact that the quizzes, tests, projects, and exams that he’ll be held accountable for have a *pretty* good chance (not 100%) of sorting out how good a math student he is compared to students who got into the class on merit. Same thing for any job you feel someone landed that they didn’t deserve; they’ve still got to do the job. Time will tell if they deserve to be there.
nice posts, ssf. I like the variance of life statement, I knew the quant stuff wasnt useless!
I still say that you don’t have to be that smart to work in finance, just smart enough to get the job in the first place.
finance is much more about tenacity than intelligence for the majority of successful professionals ive encoutnered.