What makes a superstar?
I've seen people talk a lot about these superstar outliers who make 8 figs young, etc
I'm not asking this for myself, as I doubt I'm one of those, plus even getting into a good HF would be difficult for me rn. I'm just curious though, what would make someone a real winner here? What traits or talents?
Is it just IQ/intelligence? Some intangible "financial IQ"? Some combination of features?
its luck, but good luck getting people to admit it
yep.
helps when you have balls and some skills to pair but need all 3
Yeah, John Arnold just got lucky...
right place right time and cocky enough to swing really big
It's luck
There's likely some relationship between IQ and privilege. However, the number of people in the industry that come from extremely levels of privilege is far too high for it to be from that correlation alone. yes, of course everyone in the industry is above average intelligence, but I actually think it selects heavily for very extreme levels of privilege more than anything else, since this is the single best predictor of whether you'll get some of the early advantages to break in and succeed.
Instead, imagine you are a PM at a SM and you can hire two people. One is the son of someone worth $100M+ with IQ 140 and the other is a regular person with IQ 140. Obviously you would be severely retarded to not pick the first person.
The reality is there are few spots and in my experience maybe 20% of people that end up at elite HFs are not what I would call extremely privileged. I would define this as having parents that paid college tuition for your education since birth and whose home is worth more than $5M or so but that's arbitrary.
Why would the most privileged people in the world choose to do this job if it required you to be a genius? Most of my peers are literally like kids of billionaires or executives, etc. They could do anything. If this was a job where you would fail unless you were a genius why would you do it? That would be retarded. The whole point of privilege is you get to do something easier and get a better outcome without having to work/try as hard.
The point of this game is that you get to be in a slot where every once in awhile you get lucky and make $10M and get to walk away in the sunset, but sometimes you get unlucky and make $1M. Yes, the industry does hire brilliant people, but luck, privilege etc play a majority role.
The other thing to keep in mind is that people have no idea who is good at the game. I don't understand how people act like they do. They just know who has a good reputation. Yes, word gets out. But not really. It gets out as much as maybe what your SAT score was in high school or something. Yeah maybe you know some people's scores or whatever if you're a effing weirdo but usually you don't. Nobody goes out there just memorizing random facts about other people. Also, when you leave you usually can't market your actual track record. This is great, because most people have bad track records. As a result, getting hired later has very little to do with skill. The idea that the two are highly related is mythology.
The job is really not that hard and I've literally worked at some of the best firms. Yes, there are nuances. Yes, there are ways to be smart about it. But no, it's not harder than being a doctor or lawyer or any other profession. Just because it makes more money does not mean it is for a "good" reason like that. That's really just not how labor economics works.
Also literally people will do their "diligence" on a PM or analyst or whatever by talking to some sell-side person. Guess who that person recommends? Someone thats going to bring in fees. Any that's not really a question of how talented they really are and is more of a political "scratch by back" question.
However, I do think that multi-managers are excellent meat grinders and while you are at a given multi they do have the ability to assess whether you are skillful somewhat. Not perfectly. But better than random maybe which I think was the alternative before.
Totally understand the take and don't disagree with the nature of what you're saying / that many privileged people enter the industry or select it as a result of risk/reward in the context of career paths with large reward pools with finite levels of risk, but you could make the exact counter-argument that any non-privileged high-IQ folks are also competing for the same jobs because it has the same characteristics OR the counter-argument that those with extraordinarily privilege are afforded the ability to stomach MORE career risk and therefore can go down the path of start-up/entrepreneurship/VC, etc. Food for thought and I don't have a view that this is how it typically plays out, but anecdotally the "most privileged" of my peers actually went down various non-traditional routes in either finance (start-up/VC) or something completely out of the industry - again not trying to argue correlation but the idea being that their privilege actually allows them to take more career risk, not less
I'd also argue against your idea around labor economics. If the job wasn't that hard and the industry wasn't desperate for good talent folks wouldn't be getting insane guarantees, period. Sure you can argue that the industry and multi-manager hfs are flush with cash but they're also not idiots and they need talent to succeed and survive. That would insinuate that 1) the job is clearly hard if the top funds are willing to pay professional athlete-like $$$ to the top performers (is being an all-star athlete that "hard?" I'd argue yes) and 2) I don't think the argument is around comparing it to other fields, people make decisions for different reasons and the folks going the law/medicine routes have different ambitions with different goals, and in some/many cases they're ALSO intrinsically linked to pay. If you make it through law school/med school at a top university you have a pretty damn high % success rate to be making north of 7-figures annually if you climb the ranks. Not saying it's easier or harder (the jobs themselves, at least in medicine, seem to be much harder) but if you follow the path designed by these schools and firms/hospitals/practices you have a decent shot of ending up in a good spot, privileged or not
I think the industry is far more diverse than you give it credit for - I have buddies who are 1st-generation off the boat immigrants who went to school in their local country and grinded to get their MBA here and are now all-star analysts. I have buddies who grew up in upper-class families who took the privilege and ran w/ it and made something of themselves who are also tremendous investors. I'm not gonna pretend like I know what the right ingredients are for replicating successful individuals in the industry, but I certainly think it's some combination of drive/work ethic x intellectual horsepower x intellectual curiosity x probably some ambiguous luck/opportunistic factor. If what you were saying was entirely true you'd see way less turnover/burnout across the industry than you do
just my two cents
Yeah what you are saying is primarily in pod model. I agree pods are much less random and far more merit based. I would actually say that is the reason for their success - managing factor risk better also helps identify talent better in a way that is harder to game. Outside of that I don’t think what you are saying is true. But even within pods I think most ppl will tell you there is still a lot of randomness and luck.
In terms of who gets down that path I do still think it requires an insane level of privilege. Every self made person in the industry I know that grew up poor has a parent that made at least $300K a year and probably paid for most of college etc. of course if you are a nepo person then you are 100x this and that is essentially the range of backgrounds. Privilege is self fulfilling because having a good background means you are more likely to get actually good experiences and then be more qualified.
It’s hard for someone in the industry to see tbh because most ppl that do this have only worked in that one industry their whole life so they generally have almost no real perspective. I only really had this perspective when I did other things later in life and because I used to help my dad with what he did (he was a talented engineer). I’m not saying I’m better btw but I say this actually mostly just to say tbh it’s just a good industry to be in and you’re lucky to be in it, because you mostly fiddle with numbers and get paid a lot to do so.
How many bps does privilege add to my sharpe and how rich does my dad have to be so I don’t trip a 4% drawdown limit?
For fundraising I get your point. On the other hand a strongly disagree with:
Yes, that's why I am saying it is less random in a pod model. This is why they end up being meat grinders and extremely tough to work at. I agree that model is a lot more meritocratic. Note however this approach primarily works when you are very confined to a specific model.
Because now there are very few roles, it often is the case you need a lot of competence to get the roles but that is not enough. Quite often the people who have the right experiences also have a lot of privilege too - not all but often they do.
Luck
Damn it. You stole my line
It is typically the market not the investor. Usually someone in this position is riding a sector / strategy just as it is taking off... which is a mix of good strategy-person fit and being in the right place at the right time. Unsurprisingly the outlier young "star" outcomes have been in TMT in the last decade or Macro in these last 5 yrs. This is just how capitalism works it is not unique to hedge funds.
And then future success compounds as you get access to the best opportunities / seats / resources / information / etc.
Because I think the luck answer has already been said 5 times and won't stop anytime soon, I'll purposefully be the devil's advocate here and say persistence. The more time you spend in the arena, the higher your likelihood of getting lucky or whatever else someone might say.
If you're unlucky, you'll get pushed out of the industry - not everyone has the privilege of being able to hang in the industry after several setbacks. So it still comes down to luck. Give 2 people with exactly same IQ/drive/persistence, the one with a luckier timing or family background wins out. So it's still down to luck.
I agree with you, but it makes for a very uninteresting conversation. I'd like to believe there should be something practical added to this thread that is actually deterministic. It helps knowing that a lot of things are luck, but because you can't exactly control it (directly), it's not really worth worrying about. Whereas things that are directly in your control should be the focus. I hope you understand what I mean.
I used to believe, like everyone else in this thread, that it was all luck. Then I got to know a superstar. The answer is that they are just better. He is more thoughtful, more focused, more intuitive, than anyone else I’ve met. What he actually does seems so ordinary, it’s not 4D chess, but it just works. His research and analysis is just better. He covers a wider universe of names sharper than everyone else, His bets of conviction rarely ever miss, and he just prints money for his firm.
I know I will never be able to convince anyone in this thread otherwise, because I myself refused to believe that people like him could exist before I met him. I believe it’s a form of denial, a form of ego, to make us 1%ers feel better about our abilities. But the fact is that there truly are .01% superstars out there. And no, it’s not all luck. I know I could never be like him, even though I have been successful in my own right. If you ask him he will be humble and say it’s just a matter of putting in the work, but I disagree.
He didn’t go to Harvard. He isn’t a math genius. He didn’t have a 4.0. He didn’t work at Apollo. But some combination of life experiences and neurological wiring just gave him what he needs to be amazing at public markets.
The one thing I will say is that he absolutely loves the game. He is more passionate about it everyone else, in an industry where the only people who play are passionate. If you capped his pay as an investor at 50k he would chose to remain an investor. I genuinely believe that if you made him choose between his wife and the ability to work in the HF industry there’s a greater than 50% chance he would leave his wife.
There are exceptionally talented people - but many of the most successful I know don't fit that bucket. And some that do haven't made as much as you'd expect. Still need the right opportunity and some early luck imo
haha the last line is funny
Shit, should I not go into HFs then?
If it paid 50k, I'm out
What about his investment theses make them so successful? Is there a way to boil down his thought process into a few guidelines and techniques?
No, there is no reachable ‘superstar’ checklist
Creativity and independent thinking are required to adapt to changing conditions and deal with uncertainty
And yes, various other conditions are required to make a ‘superstar’ some of which are environmental or random
I’ll tell you what though, I’ve never met a superstar either privileged or otherwise who views the world through a lens of privilege and perceived unfairness. They may address such things via charity, mentoring etc but their general mode of understanding the world around them doesn’t place much weight on critical theory and grievance politics - not because privilege and racism don’t exist - but more because they are not at all useful for understanding the modern public markets in a commercially useful way
I think it’s a combination of luck and not being retarded. Example of being retarded is trying to do some dumb spin off SOTP value unlock trade for some esoteric shit co when you could have just bought NFLX and chill. Luck is you’re long DASH today and the world suddenly goes to lock down because of Covid.
Everyone does the same shit. Everyone’s long and short the same shit. Liquidation event in March this year shows you how crowded everything is. Everyone’s on the same calls doing the same research and is mostly aware of the same bull/bear cases as everyone. It’s also just vibes and luck from there on.
Take your conclusion to the next logical step. If everyone is long the same shit as you say, why are there dispersion in outcomes? Because it’s not just about picking stocks. A lot of pro nba players can shoot a basketball well when no one is guarding them. Put them in a real life game it’s different. Similarly, how you construct a portfolio, how you size, how you trade — can all lead to different outcomes at the portfolio level which is what people ultimately see. Yes the big picture trends are obvious but how do you monetize. It’s a game of doing a lot of little things right every day. How you react to situations and how you treat risk will dictate how well or not well you monetize the ideas
Underrated comment.
I don’t work in public markets, I work at a megafund in PE, but the sentiment rings true. There are like 1-2 legitimate ideas that we know for sure are going to make money and they are boringly simple. However, we cannot do only these 1-2 things - we have to “diversify” into a bunch of other shit that is much more inherently risky, because there boxes to check and LP dicks to suck.
Due to this, you get so many complicated, retarded, ideas - almost always from pre-partner level people trying to look smart. Right now I am working on someone’s idea to take private a multi-national industrial conglomerate and then spin off a bunch of the businesses. The kicker is that we would underwrite a return 3-4% lower than our fund target lmao. Overly complicated, would require a shitload of effort, and would not even yield an attractive exit. “But it could be our foray into xyz sector!” Bruh stfu. We are in the money making business.
I feel like most of this stuff is just common sense tbh. People drastically overthink what a good idea has to be. I really think the simpler ideas are better in a majority of cases.
I know I'm way late to reply to this, but I genuinely wonder if our actions as investors often are not, and intentionally not, value-additive / alpha-seeking. After watching so much inefficiency clog up my large asset management firm, I've gotten to wondering if we just like comfort, or culture, or following the crowd, or something else to the obvious detriment of making money.
Like at the end of the day we are here to make money. Period. Why are we doing all of these other things? I mean I get we got to please everyone, but when I watch money obviously being lost I wonder to myself "What's going on here?"
Drive, focus, intensity. Even in other fields, look at people like Zuckerberg. Absolute psycopaths that are 24/7 thinking about the business.
IQ is only table stakes.
It's luck. You think Zuck in 2024 would have been as successful? Zuck trying to found a social media platform in 2012? A few years too late, wrong time even right place and no story.
Luck plays a role, no doubt. But there are ways to make your own luck.
"Luck is what happens when preparation meets opportunity".
Would say it’s 10% luck, 20% skill…
15% concentrated power of will
5% pleasure
Luck and high risk tolerance
Like others have said, It’s mostly being in the right place at the right time. However there’s an art to convincing people that it’s largely skill/repeatable. The main question is how long is it repeatable?
Being a one-trick pony is largely luck. Being a multiple-trick pony (i.e. multiple big wins), even if it’s luck, creates a trendline people can extrapolate from.
Luck + very smart (but not genius necessarily) + getting into the right stuff very early.
You are basically guaranteed the luck component if you grew up wealthy in the right areas (atherton for tech, hamptons for finance and similar).
I wrote in the other thread about where the next generation of super star managers will come from - which echoes the point about getting on the right trend.
I’ve thought about it a bit more and have another aspect to add.
I think if you boil it down you have:
Incrementalist - basically the best technician for a given market regime; these tend to be toward the middle/end of the regime. Think of quants who basically use the commonly available data the best as being a pure example of this - they have mastery of statistics, some edge informationally and the infrastructure to take advantage of these traits and then in a reliable way concentrate market power / size. RenTech, Arrow Street, Pod Shop model / Jane Street, the current powerhouse investment banks (which were not as large and concentrated in the 60-70-80s) - I think this applies at the individual level also - if they’re able to implement the above.
2. Disrupters - this is a very small category that I’d put basically Milken, Edward Johnson, Lovelace and a few others in, at most (I mentioned Satoshi with Bitcoin). Essentially creating an entire financial market - high yield bonds, mutual fund pioneers etc. these are the financial entrepreneurs that come along once a generation with the right timing, usually around massive regulatory shifts. As an individual contributor, you’d need to be very involved in the actual fundamentals of how finance works and find a way to create a more efficient use of capital, market it broadly and then harvest and maintain control of it. Near impossible, hence why such a small pool of names; but they are all worth 10-50bn+. These guys typically CAUSE the regime shifts.
3. Innovators - I put this more in the traditional star managers; Soros, Tiger, Buffett etc they take a lower level of Knightian risk than the disrupters, but are earlier to the game than the incrementalists, not needing the data to build out their strategies. These guys make it big in the earlier parts of regimes where it’s less data rich, and depending on adaptability survive (Buffett a great example of this), or get smacked (Tiger) when the regime changes. They are stars because of a combo of survival bias, as well as how they interact with the market. Soros broke Bank of England, led to the Asian Financial Crisis; Buffett bailed out a number of real institutions etc. The thing about being a star in this category is realizing you’re shaping the market as you play. You may not write the rules it as much as the above class, but you are the best of the league.
Applying all of this to the individual level; after seeing some of these innovators up close in person, and reading a lot about the incrementalists and disruptors; I think first is know which class you are in (I guess most reading would fall into the third bucket); and then try and emulate the core characteristics - reliably shape the market you are in (be the incremental dollar that actually drives the informed price) and be adaptive to regime shifts, understanding what that means (have more cash / flexibility than is warranted + be more decisive cutting and adding positions when you have the view the market itself is changing). At the end of the day, financial markets are simply people sitting around a table deciding what the time value of money should be (expressed as the multiple of money one pays), given an uncertain set of probability paths.
Sometimes the rules change because people leave the table and new people come, sometimes technology allows for better “consistency” between people’s actions, sometimes someone blows up, sometimes people just get bored, fearful or greedy.
to put it another way - to be a superstar is to be the best at reading poker players, the best at calculating the odds and behavioural patterns, or the best at coming up with a new set of rules for poker and getting everyone to play while you deal.
Intelligence and persistence much much more than luck, though a mix of all three (unless at a fund/strategy that just rides levered beta in an up-market). Anyone who says it's all or mostly luck lacks the intelligence to see otherwise, and that's a fact.
basic intelligence and hard work are table stakes. many people have these but dont make it big. luck is the only real differentiator among a functionally endless supply of hardworking intelligent people and is thus the single biggest component that drives the end result
Creativity and independent thinking (separately from intelligence) are not table stakes in the industry and they are a bigger differentiator of alpha than luck
Separately, alpha =\= wealth, and some rockstars are great salesmen who can raise a lot on a few lucky bets. Both exist, there is a difference and there are people who both also
imho -- wrong. Luck is not the differentiator, it's hunger. Some people want it more. Some people are ready to kill to make profit. You simply cannot compete with someone that has that mentality. Hunger and greed is the number 1 differentiator.
As institutional money has become more discerning in decomposing alpha vs beta & idiosyncratic vs factor returns, the “luck” answer isn’t as true as it may have been in the past
It depends on the context, if you were levered long a certain secular theme or industry that worked…. That could’ve been lucky (right time right place). Or it could have been skill (you expected that secular theme / industry to outperform and made that bed among a wider universe)
If you’re putting up high sharpe low vol returns at scale on in market neutral context that is almost definitely skill (and not being UNLUCKY). Perhaps you had some temporary edge that will fade (you were early in utilizing some alt data source for example) but that’s skillful in my eyes
Higher level - rockstars I’ve met that I see as rockstars are intellectually curious, very hardworking and passionate about stocks, and commercial enough to run a team & business and interface with capital providers and management teams
↓
It's simply the ability to make bread by all means necessary in any moment and market condition. It's not IQ, hard work, luck, nor talent, it's the innate ability of having that dawg in you aka killer instinct, and being more and more hungry for dollars with each next trade. Some people just want it more. No amount of raw intelligence of studying ben graham or earning calls is going to change that. You can either pull the trigger cold blooded or you can't. And you can't learn how if you can not, I promise you.
That dawg in you? Pull the trigger cold blooded? Tf... type of bro that takes one picture in a suit then start posting quotes about success. Just go to the wedding bro.
You don't get it and that's fine. Many such cases. Go grind you excels lil bro, that's what you're good at.
I also want you to go in the mirror take a deep look and reflect on your internal issues as to why my comment triggered you so much. bro think's he's so serious.
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