I've been working in buyside equity research for almost a year now at a well known value shop. I really enjoy the work but am curious to know what I would think if 10 years from now I realized I just didn't have what it takes (ie long term under-performance vs benchmark). Not saying I think this will be the case (too early to tell), but odds are (statistically) that it will be.
Any of you out there have this realization? How do you cope with that? I can't imagine being a PM and knowing that I have slowly destroyed potentially billions of dollars (when factoring in compounding effect) investor wealth over the course of my career. Do you just call it quits at some point or do you just keep on keepin on?
From what I have seen, most people ride it out until 1) their performance improves 2) they get canned 3) they retire. There really isn't much other choice once you hit midcareer. Moving to another field usually entails a huge pay cut, so most analysts wouldn't do it voluntarily.
More difficult is if #2 happens. A lot of the "older" people that worked in this industry (i.e. 40-50 years old) that get laid off don't land on their feet again. This is especially true for sell side analysts. The whole industry is shrinking and people that are laid off get the damaged goods label, fair or not.
that's why you collect fees...
Ironically, people who actually do destroy investor wealth always have reasons for why it wasn't their fault. It's just attribution bias in action. Thus, I am pretty sure that, when/if one gets to the relevant point, one is very likely to "keep on keepin' on".
So there you have it: people mostly cope with this issue by deluding themselves. It is thus very difficult to answer the questions you are asking a priori.
I always found it interesting that if you read a lot of great value investor letters they are extremely self critical and will not hide from mistakes. Probably what drove them to continuously be improving and smashing the market in the first place...kind of the opposite end of the spectrum of what Martinghoul stated.
Funds have always been about making money off OPM. Tails fund manager wins, heads LPs lose. I guess when you are making so much money you find a way to rationalize mediocre performance. Just a great business model really.
From what I see in my current job, many people who just can't make decent returns over a certain stretch, but who are otherwise well qualified investment pros, become placement agents for money managers who do have a good track record and prospects, but are challenged to find clients.
I've never seen anything about the business niche of placement agency here on WSO, but it's a potentially rewarding career track, if one can sell and can handle a lot of travel.
To add, placement agent fees from what I've seen are crazy. They can take as high as 40% of the 2/20.
Does anyone have any data on whether the investment committee approach or the standard model of having one single pm who calls all the shots have better performance?
I think a smart, experienced investor can still be a huge value add on an investment committee even if he fails on his own. If, however, the committee approach leads to worse results then there is really no justifying staying in the industry if you suck (from a societal impact standpoint).
Laudantium quam voluptate mollitia rerum laudantium. Nulla non et quasi aut.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...