Is experience really better for the investment business?
I’ve been pondering this topic over the last few months, from the heady days of September, through the market peak, down the chute toward the Happy Holiday-Christmas Eve crater, then up the post-Christmas ladder. In particular, I want to feel some confirmation that my decades of experience, working as an analyst, a fund manager, and a CEO of an investment company, through every type of conceivable market environment, confer a plus rather than a minus when it comes to decision-making about stocks.
I have noted in the past that investor conferences don’t need to offer senior discounts – almost no one is over fifty-five. Most of my former colleagues have stopped actively running mutual or hedge funds. If experience makes it easier or accounts for some benefit, wouldn’t most of them still be in the game? Don’t tell me that with enough money, people prefer to retire; I’ll counter that stock junkies don’t easily lose their addiction.
The answer, I believe, revolves around pain and how we handle it. Long ago, when I worked for Peter Lynch at Fidelity, running around the country to research companies for the Magellan Fund, I remember him saying that the best fund manager was right 60 percent of the time. That meant you were wrong 40 percent of the time, which seemed like a lot.
When a surgeon repairs a torn knee ligament, an accountant prepares your taxes, a lawyer writes a will, or a diamond cutter chisels into a valuable stone, aren’t the odds of success much higher? I sure hope so. Not true with stock investing. The market deals out a lot of pain, and we, its willing participants, need to live with and handle that negative feedback. Even when returns are positive, trailing an index is debilitating.
For almost all of us humans, the sensory scale tilts sharply toward pain, not pleasure; bad lasts longer and goes deeper than good. Getting punched in the gut over and over can lead to paralysis, investor PTSD, which can make us cower in cash, and find excuses to avoid buying after a huge sell-off, such as in 2009, or after a sharp vicious correction, as we saw a month ago December. If that’s where your experience leads, you can’t compete in this business.
The upside is that the investor experience can be illuminating rather than crippling. You can be sure Warren and Charlie (you know who) learned how to bounce back quickly after a bad stock purchase, analyzing their mistake, and applying that insight into subsequent decision-making. As in sports and the military, it becomes impossible to survive for long without that resetting mechanism.
I value my younger colleagues, even when they are slightly dismissive. They have the overconfidence that coincides with youth, plus the digital and internet savvy which convinces newer generations of their own omniscience and the irrelevance of accumulated wisdom. While this frustrates me, I now see this as a challenge – to argue my position not just on the merits of my age and experience, but by making a strong analytical case for or against an investment.
There must be value in the collective memories of thousands of companies I have studied, across every industry, through every conceivable scandal, surprise, ecstatic ending or devastating collapse. That can’t be just a waste of energy, right, plus I can win most rounds of “name that ticker.”
Many years ago, I learned from an older fund manager that, at 4:00 p.m., you need to wipe that day’s action and performance clean, mentally releasing the self-congratulations and the self-incriminations. Tomorrow is a fresh day, those 60/40 odds probably don’t change much with age or experience, but they are in our favor.
Now I’m going to find us a really cheap stock.