Investment styles and lifelong learning

Thoughts on investing styles

Around the same time as I started this blog I also switched into a new area in my team at work. I’m once again faced with the struggle and joy of learning new things at work, this time in understanding factor risks also called styles. So the new role is spending less time meeting brilliant fund managers and more time on analysis. But I did learn a lot from all the great investors I met and I would like to share some thoughts.  As everyone interested in the field of finance, I read a tremendous amount of financial news stare at stock charts, etc. I also dedicated a lot of my time both for a Msc in Quant Finance and later a CFA. But the deeper I delve into Finance there more I get the feeling how incredibly much there is left to learn. When I still was in University I was a more confident investor than I am today, when I today know probably 10 times as much.

We all know examples of extremely clever people, still making huge mistakes in investing, maybe the most famous one being Long Term Capital. You can be one of the world’s best at company valuations, knowing all the ins and outs of a balance sheet but still makes big mistakes. Investing requires you to be a master of so many fields, it’s more or less impossible for a single person to be all that. We can see how people try to handle this by narrowing the universe of what they are looking at, for example only one country or one sector across countries. Another way to slice it, is to become a master of an investing style. Many bloggers and investment professionals focus on one style, for example Small-caps, Value, others look at Growth, and some try to combine styles for example GARP (Growth At Reasonable Price), small cap Value etc. Other skip companies and invest more through Macro views, or given the low interest rates, Quality companies and High Dividend strategies has gained popularity. I have also seen a trend (hehe) more recently of Momentum investing gaining traction also outside of the CTA/Trend-following hedge fund space. All these styles requires tremendous effort to master fully – and I’m sure nobody is master of all.

Don’t choose your style to quick

In essence, the more knowledge you gain, the larger the chance is that you can skew the odds in your favor and generate alpha. It’s a never-ending learning journey where curious knowledge seeking people can express their knowledge into investment ideas – and potentially reap the rewards. I think that is the core of why I love working in and with Finance. I have still not reached the stage where I found my “style”. But I don’t want to rush it. I feel a lot of people for example read about Buffet and Munger’s success in investing and then they just decide – I want to be a value investor. They then gather up all great written books about Value investing with the mindset of, I want to learn to become a great Value investor. But they never really gave for example Growth investing the same chance to shine. They did not have a good picture of what the different investment styles had to offer, they already plunged in and decided Value investing is my thing. Well maybe it is, but for me personally I want to spend a few more years understanding both stock markets around the world, different sectors, as well as different investing styles. Because if it’s one thing I learnt from meeting all these great managers out there, with great track-records of alpha generation – there is not one style that is superior to others, all different styles of investing can work, if you do it right. And maybe as important, different investing styles will outperform during different times. We all know the story of how people laughed at Buffet around year 2000, and how his Value investing style came back with a vengeance when the bubble burst.

Weekend reading

In the spirit of learning more I have spent a larger part of the weekend reading up on different blogs, and also watched a fair amount of material on Youtube. Internet truly is a marvelous place for all us knowledge thirsty people. I wanted to share some good material I have come across.

I recently read a book by Guy Spier called The Education of A Value Investor. I read it after a recommendation from the blog Value and Opportunity.

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In the book Guy talks about how he transformed his life in the pursuit of becoming a better investor. The book kind of grew on me, from being a bit skeptical in the first 3-4 chapters on what the “Value” for me was reading about Guy’s life, but it came around towards the middle of the book, delivering a lot of thoughtful insights. So I would also recommend a read, not so much for investing insights, but rather for personal change. One of Guy’s mentors is his friend Mohnish Pabrai, which he talks warmly about in the book as a great investor. Today I came across a blog that promoted a Video-lecture by Monish. I found the full material somewhat to long-winded, but I loved the short 5 min quick version of what Mohnish talked about, please check it out: Presentation on Stock Bubbles

I found the material resonated a lot with my own thinking, that the markets are currently a bit crazy, pricing FANG stocks (Facebook, Amazon, Netflix, Google) and others like Tesla at crazy multiples. We are in something of a new Nifty-Fifty scenario – and I don’t like it (since I don’t do shorts).

A hated guy who gives a lot

I read on another blog about someone called Martin Shkreli. I googled it and found out it’s that hated guy in the US that raised prices for a drug he bought the patent for. Well I guess I had too much time, but I spent like 2-3 hours watching videos of him and how he is building a fan-base through YT and other channels by actually responding to all the hate. He sits hour after hour and answers his phone from angry callers (you can watch it all through his YT live-stream) and explain things from his perspective, and his arguments are actually convincing. Anyhow, what I wanted to mention is that he also spends lots of time to educate the once interested in learning more about investing and valuation of companies. So if you would want to learn more about how to value companies do check out his videos, here is a link to his first lesson on Finance: Introduction to Investing

 

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