Random Musing on Mr. Market

Again take everything I say with a grain of salt...

1) Are we happy yet value investors?

A while ago, I was once asked if I was happy. It was a weird question since I'm generally a happy person but this investor thought I wasn't expressing an appropriate amount of happiness doing my job (during a period of good times). To be fair, I sometimes come off as "meh" when doing my job...there's only so many times you can say something looks fairly valued before people begin to wonder how useful you are...It's not always a happy time going through volatile periods but I admit I'm happy I can pitch ideas with decent upside/downside valuations.

2) Politics of money

While the mood of investors can mirror the markets, I generally feel the same through market cycles and don't get much anxiety during volatility. You would think this personality trait would make me a great investor, but unless your namesake is on the door and the money is your own, you're not making decisions based solely on objective rationality. Even if you feel you are a rational and opportunistic investor, your money can feel anxious. Stupid money. This puts people in the odd position of doing things when they really shouldn't be doing much and fighting organizational inertia when they should be doing a lot. The politics of putting money to work is real. I sometimes envy the coldness of quant strategies.

3) Emotional markets, emotional value investors

Speaking of anxiety, there's this weird tendency of supposed "value investors" doing un-value investor things during periods of volatility. Many say they get excited when all hell breaks loose, but (from my perspective) few actually act on volatility. Maybe they'll make a few small moves but you're not going to see meaningful shifts/moves in the portfolio. Reality is many are selling right into the bear (especially positions they don't know) or are too nervous to do anything.

4) Irrational things happen when in love

Investors don't purposely want to act irrationally but sometimes you can't control your emotions when you fall in love with the markets. During times like this, analysts are like the best friend that is largely ignored during good times who steps up to be supportive during emotional times. They play an important role acting as a pseudo psychologist talking PMs off the ledge and counseling them to think rationally and put money to work. This is career defining stuff (see #7). It's actually amazing how many meaningful "wins" are attributed to genius investors who initially wanted to punt the position and the analyst had to fight to keep it in the portfolio.

5) The prom queen and performance anxiety

We do a lot of talking about all the things we would do if given the opportunity. I'm just as guilty of doing this as the next hedge fund professional. The thing is it's one thing to talk about hooking up with the prom queen and a completely different ball game when actually presented with the opportunity. Performance anxiety is real. During periods of volatility, folks revert back to awkward 16 year olds and freeze.

6) The 90-10 rule (or whatever pareto principle ratio you want to use)

There's this quirk in the hedge fund profession where your career can be defined by a handful of moments or moves that are (typically) obvious in hindsight but very difficult to time (or properly position) in real time. No matter how good or consistent you are, (IMO) 90% of your career will be determined by 10% of your decisions (some say even less). I've seen guys make partner on a couple needle moving picks (note: couple wins are magnified in concentrated, long-term portfolio).

7) I work 2 weeks per year and worry during the other 50 weeks

What you do/recommend during meaningful volatility will have a bigger impact on your career and credibility than what is done during periods of stability. There are guys who look very good right now because they were pounding the table to go risk off this summer. Happy investing.

 

100% agree. Amazing how trend following even the most fundamental investors become when the market takes scary big swings. Suddenly the contrarian that likes to 'buy into dislocations' is interpreting the plunging share price as a reflection of deteriorating fundamentals, without any data or evidence

 

To be fair, there IS always a fundamental narrative in the market "explaining" the price action. Determining whether it's signal or noise is why we get paid... and there won't always be data or hard evidence... not everything that counts can be counted.

 

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