All that glitters is not gold

One of the best ways to learn how to invest is to learn from good investors. However, even if you are already in an investing environment, it can be quite difficult to find them---not everyone who looks impressive are actually good at thinking thoroughly and independently at all. Imo, one of a young monkey's learning challenges will be to understand who around them is a good investor, and what makes a good investor anyway? The difficulty is that it's almost a circular argument sometimes--knowing what makes a good investor would require you to know enough about investing, which is the exact thing you are trying to learn.

One of the problems that I've seen is that when the industry recruits, they often go for the "wow" factor. As long as a candidate is "impressive", it's not always thought through whether they will also be critical thinkers, because people more or less extend candidates' past achievements when evaluating their future. In truth, most people who are the most competitive in job interviews aren't necessarily where they are today because they've thought independently or taken risks for themselves.

Take a very common target school candidate, for example, let's call him A. A has grown up middle class, gained his first exposure to finance in college, and has always known that no matter what he wants to do, he needs to have good grades. For the most part, if a person has "won out" in the college application competition, they more or less know the fact that no matter what you do (or how well you did it, how whether you learned anything from it/if it challenged you), you have to look good on paper. This tendency to make sure he looks good on paper follows our candidate A through college years, where he chooses the less challenging courses-- which are not necessarily easy classes, but just the ones that he is familiar with or that he can do well in--while ignoring his curiosity. A typical example of this would be an Econ major who has always had an interest in Biology (for the sake of the argument), but always knew that he would not choose a biology class because he won't be a pre-med and would rather have higher GPA.

So, as a result, many of these people become better on paper than people who have actually taken some risk in their eduation and extracurriculars (it's okay to join an organization to grow a skill or challenge yourself rather than to become one of the 6 presidents!), and we are almost systematically picking out people who are good at following the safe route well rather than taking real risks and facing uncertainties. This is certainly not saying that they are incompetent--you have to be able to follow the safe route well in order to be noticed; but still, it requires no intensive self-understanding, exploring, or informed risk taking on candidates own behalf, but he still looks very good on paper and has a higher chance of getting in the door.

Sometimes, I think these people are like highly competent automatons, but I digress....

A second sort of people who also look very impressive, but won't really offer you much in growing your investment philosophies are people who hold impressive positions because their internal starts were aligned. This is more common at larger firms, where whether you get your own risk or not depends more on whether a large group of senior people like you. It is possible, that you might meet a very impressive person in terms of company ranks and even actual responsibilities, but later realize that the way he takes risks/invests has no coherent process, or is just a regurgitation of what he's read from sell-side research this morning.

A larger company makes this possible because there are just so many people in each rank; in these situations, the more well-spoken people will have an easier way of standing out. They don't have to know what they are talking about, really, they just have to sound convincing, and make sure everyone likes them.

Now, there's nothig wrong with sounding convincing (or confident might be a better word here...) and trying to be a pleasant person; in fact, these are very important skills that you will need no matter where you go (there was a very good post here on WSO a while ago titled "Just got your first job? Pay attention to office politics" or something The content in that post would be applicable to any finance job, imo). However, it is much more common to see people who use these skills as a camoufalge for one's lack of analytical ability, rather than using them as a complement while already possessing strong analytical skills. Most people prefer the easier things to do, if one can get away with not having to pound the pavement and do all the hard work and still get the same or even better result, why not? As for those who actually care about what they do or really spend their time and energy learning about the companies/market they cover, sometimes they are just too proud or too annoyed to join the BS train, and wound up being paid less attention to.

A third category are people who made it just by having seniority. Note that I don't equate experience with seniority. Experience is a wonderful thing--it gives you more perspective on the market (and on life in general), but it is certainly possible for people to become more senior without having refined their insight a bit. Typically, these people will also have a bit of #2 above, though in cultures where you see a higher premiuim on seniority, you are mre likely to see those people around.

To be fair, finance is still a pretty meritocratic industry in my opinion, and high performers still have a good chance of standing out, if they actually give a crap about office politics rather than just ignoring it in annoyance. That being said, there are still many reasons why a person with impressive resume, career path, responsibilities might actually be less than what his titles imply, and if you need to evaluate who is actually a good investor or a good investment team, I personally think that the only way to do this is to thoroughly understandig their investment process. How do they produce their return? Strip away all the fancy words, what does the content of their speech mean? And more importantly, does this process make sense? do you think there are rational reasons why such a thought process/investment process should help them outperform the market? At the end of the day, your process (or "edge" as people call it) is probably going to be different than any other person's, and certainly you don't want to force yourself to become anyone else because at the critical point where you need to make a decision, you probably won't be able to make it authentically. I've found it to be a good exercise to observe what senior investors do, and to evaluate their investment process in my head. In a way, knowing what doesn't work and why they don't work has helped me to see more clearly on what I think should work as well.