Monday, November 10, 2008

How I Feel about Investment Management

I have been putting this post off for months because my feelings can swing so wildly to the pro or the con on this question that I am reluctant to pen one position since I'll likely regret it later.

While I still actually agree with most of my Why Investment Management points from last spring, I have generally become completely disillusioned and bored of the industry in a way that I (despite years of some reservations) find pretty astonishing ... and completely disorienting. I have spent the last 7 years (if you include my MBA) preparing myself for this career - not a small commitment. It feels so shocking to turn away from it now. On the other hand, I definitely know what it's about and how I feel about it, so it's probably one of the more informed decisions I could make these days.

The simple story is that I find the idea of a lifetime spent in equity/debt/what-have-you research overwhelmingly boring. I found sell-side research really boring but thought that moving to the buy-side where there were dollars and cents attached to my ideas would cure this problem. Unfortunately, as short and rocky as my summer was, that doesn't seem to be the case. While it is true that you get to think about lots of different companies and industries which is potentially entertaining, you are doing essentially the same thing day after day after year after year: reading filings, talking to management/experts, building models, etc. And worst of all, you are doing nothing. Just thinking and pushing assets around. Face it folks - this is not doing.

To make matters worse, although I do not believe that markets are perfectly efficient, I have become convinced over my years around the markets that very, very, very, very few (perhaps no) investors in public securities can consistently outperform the general market in a manner sufficient to earn the fees charged through good research alone. And unless I am one of these rare few, I'd rather not bother. I once consoled myself with the idea that I was helping to allocate capital more efficiently - well, I'm not entirely sure we need some 20,000 mutual and hedge funds to do this effectively. Frankly, I feel like the industry is mostly a hubristic, sham and I'd rather doing something tangible and worthwhile with my brain. Like build a business.

There were a few interesting thinkers at the IMG conference but there was also plenty of pap and posturing (especially from the equity folk) that left me cold. (I especially hate the platitudes about being contrarian which plague IM land. Being contrarian can make you bucks and also get you squashed. Don't waste our time with this one. Admonishments to "work hard" and be persistent are also thrown around far too often. Yeah, we get it already. That has already occurred to us, believe it or not.) But a few quotes I liked:

Every bad idea starts out as a good idea. -Ralph Wanger
Do what you're good at not what you want to be good at. -John Harris (sort of intriguing, I can't decide if this means I should do IM or not do IM.)

Additionally, there is an interesting dichotomy between what makes a good employer in IM land and what makes a good investment vehicle. For example, one of the most highly sought after long-only managers (based in LA) still charges loads which I find reprehensible. And one of the other mostly highly sought after long-only managers (based in Boston) runs an overflowing stable of funds which, while a few may earn their keep, underperform in the aggregate. I find it challenging to get excited about working for managers with whom I would never invest my own money. And the hedge funds are no better. The fees are absurd (but do line the employees' pocket books nicely) and, though I've met some folks of admirable character in such funds, the majority are testoterated circuses living on borrowed time. No thanks.

These are smart people running this money - I'm not saying that I know better than them. I just don't know if it's a game worth playing.

Now, don't think this means I am completely abandoning IM. I just thought given my previous positive posts, I owed other IM aspirants still figuring this stuff out a more balanced view. After all, if there is one thing I prize more than anything it is the freedom to change my mind. Over and over and over and ...


The Ruminator said...

top notch post from someone close to disillusionment with the finance industry. good fund managers are a scare commodity as beating the market is tough, as you point out. despite the barriers to entry (the cfa, the mba, the recruiting merry-go-around), the quality and self-awareness of some of the people in the industry is incredibly dubious.

Andrew Choi said...

I think it's actually a riskier choice to do something you are not passionate about. What's worst than trying to get out of bed every morning thinking about how much you hate your job... not much.