This article on people’s natural inability to let go of various options is interesting to me both from the view of a person who has a hard time committing to a single path in life and as an investor trying not to regret various buys or sells or missed opportunities.
On letting go
February 26, 2008
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Posted by Nelson Yee
F***ed Company
February 15, 2008In the vein of that old dot-com deathwatch, and as a continuation of yesterday’s entry, it looks like someone created a Hedge Fund Implode-O-Meter (via the WSJ market blog, which describes his other sites, including ones that follow mortgage lenders, banks and home-builders).
“Fortune can, for her pleasure, fools advance,
And toss them on the wheels of Chance.”
- Juvenal
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Posted by Nelson Yee
Moving targets
February 14, 2008I occasionally still think I might want to be an analyst at a hedge fund. I have a friend who does this at a small boutique firm in Manhattan, and I think his reasoning for entering the industry drops him easily into the demographic profiled in this article from the New York Times last fall:
Dozens of young people (mostly male) who want to be, or already are, successful traders said in interviews that they relished the challenge of their jobs, in addition to the lofty paychecks.
But they also spoke as if a money-clock were ticking: many said they wanted to make as much money as fast as they could so that they could live in style later in life while doing less lucrative things like running a charity, working for the government, spending time with their families, or inventing new technologies. Some, of course, plan to stay in finance their entire careers, and they, too, are very focused on earning fat bonuses fast.
I know that in my case, too, I imagine I could have my cake and eat it. These young guns seem to believe that it’s possible to spend five to ten years in the fast-paced finance world — just long enough to make that fortune — and come out the other side unscathed, fully stacked and able to pursue anything their hearts’ desire. I suppose this is possible occasionally, as evidenced by the occasional random Google or Microsoft millionaire that has gone on to a pleasant retirement running hobby charities, but has wealth and greed really been decoupled in this way? I think it can, but I think the difficulty is that most people in this position will not be able to achieve great wealth as fast and easily as they think. It’d be interesting to profile these kids in the next few years, or even now, months and a much more unpredictable market later, to see how their hedge funds are doing. This article seems to be “of its time” — in a year or two, it might seem quaint or naive, the way an article about dot-com millionaires does now.
That said, I do applaud the lack of credence in the value of MBAs, at least as far as investing/finance goes. From everything I know and have read, the average MBA (except maybe a Wharton grad) is ill-equipped to just jump into a financial analyst job, or at least not that much more equipped than a smart and savvy person with an above average interest in finance.
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Posted by Nelson Yee
Locked-in syndrome
February 12, 2008Bruce Schneier writes about the increasingly popular phenomenon of lock-in. From a business standpoint, this probably makes sense as a certain narrow-minded strategy, but it’s interesting to see, at least in the case of Apple, how it mirrors their old attitude of not allowing clones of their hardware. In fact, the iPhone lock-in strategy is business as usual at Apple, which some people have pointed to as their strength — they are one of the premier non-open source software companies, and that vise-grip they have on development stands in sharp contrast to Microsoft, which has an equally negative view towards open source. It helps that, at least for the moment, Steve Jobs is at the helm and is in sync with the wants of the consumer public — but that situation is always tenuous, in my view. Don’t forget, not that long ago the Apple was producing G3 Cubes and wondering why people weren’t snapping them up.
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Posted by Nelson Yee
The myth of experience
February 8, 2008Good article on the over-emphasis of recruiters on “years of experience”, from Jeff Atwood. That said, I think this applies more to industries where there are concrete measures of knowledge — success in software development stems directly from knowing how to do something versus not, so a fast learner can compensate for lack of experience. In the investing industry, fast learning may get one up to speed on possible strategies and the mechanics of investing, but I think that neither experience or a sponge-like ability to learn will make a difference in terms of actual results, since the results are highly probabilistic. As far as I’ve seen, software does not function probabilistically, so what Jeff writes makes a great deal of sense.
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Posted by Nelson Yee
A spoonful of patience is worth a pound of prescience
February 8, 2008Actually, that title isn’t that accurate, but it sounds nice, and that’s we care about here. Obviously if we could predict the future with any accuracy, patience wouldn’t even factor in. As it stands, though, the ability to temper the natural traits of human nature is the number one priority in investing, as far as I’m concerned. I look to myself as an example of this — for the past several years my investing has been poor in the face of what, relative to the days of 2002 to 2004, is a fairly volatile market. It’s incredibly hard to stick to strategies that take ages to develop a significant margin of profit or loss, so decisive action is difficult to make.
Most recently, I made a decent profit on a front-month option play derived from an underlying stock that has had a lot of news associated with it. But the longer I held the paper profit, the more anxious I got over dips that would cut it back. There was no reason NOT to let it expire in the money, and with the lack of news, the volume was not there for significant selling. But for some odd reason I got antsy, as I do sometimes, and sold out poorly — at market price, of all things! — and though I took a profit it was soured by the poor exit that I made. Since then, more news has come out to fuel the underlying and I left a significant amount on the table — instead of a 100% return, I coulda shoulda woulda made a 300% return. Obviously this is a common regret for investors, and something that must be tempered if one is to continue investing (the natural instinct is to go back in to the same position, at a much less attractive price, much the same way people follow mutual funds that have had banner years, only to discover the fund underperforming after they put their money in). It does highlight how useful it is to be a good gambler. Poker may be the closest of the card games to the financial markets, with its multiple player psychologies/strategies and incomplete knowledge, but a lot of the techniques of gambling, like bankroll management and the ability to recognize one’s own emotional responses to success or failure and control them, are present in any form of game where money is at risk.
I guess this is just my attempt at catharsis for a newbie move. Whoever bought those options off me got a pretty nice deal.
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Posted by Nelson Yee
