X-Factor / Having “it”
I’ve had this thought rolling around my head for a while after seeing a clip of that podcast where Sundheim deleted a bunch of beers and said “we get these guys who did 2 years of banking and 2 years of private equity, and then we spend 3 years ramping them and they just don’t have it”
As someone who’s working on making the switch from privates to publics, this is quite distressing. Have you all seen someone like this, and is there any way to know if you don’t have it?
I figured he’s referring to the classic ways that PE investors can fail to adapt to the new role (uncomfortable with having less data to work with, belief that more work is 1:1 correlated with better output, etc.) but I’m super curious to hear what people have to say and couldn’t see anything after digging around on here.
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No offense, but this was not helpful in the slightest and made zero sense in the context of OP’s question.
Absolute word salad.
“I was in his frat…and uh….you gotta THINK LIKE AN INVESTOR…uh….like an OWNER”
Yeah,
That’ll show WSO.
The above comment is a bit silly imo. Everyone has read the same books (or listened to the same podcasts) about being a "long term investor." You're telling me someone who worked in PE and passed the interviews and is sitting in the seat, doesn't think of themselves as a business owner when advising on a $100mn stake in META or whatever?
The "it" factor is super hard to define. The more time I have spent looking at stocks and the market, the more I think everything comes down to just this:
1) Issue identification capabilities
2) Amazing god-like judgement / wisdom / prudent decision making (maybe even "intuition"?) --> relevant once you have discovered the ONLY thing that really mattered to the idea, and for even figuring it out.
3) Independent decision making and original thinking
You can meet someone SUPER smart who can out model, and out work the rest of the pack. They have the entire thing sized, scenario analyses, backward verified granular builds, 100s of hrs spent with management and in the field understanding the product, customer, go to market, etc. But that isn't "IT"
When you meet the people with "IT" you see it. They figured out the signal from the noise 10x faster than you did. The super sexy thesis that everyone buys into immediately, they sniffed out that it ultimately didnt matter, was too complex, too many points of failure, too difficult for the market to come around on, even if it all added up. Too much change between now and future state. Or market lacked imagination on the change that was coming. They also know the cloud of doubt today is a once in a generation opportunity for a business that is about to have every star align in 6 months down the road.
I remember being a kid and feeling a bit impulsive at times. Nervous about what to say, how to act. Not my best friend, lets call him Bill. He had a calm and collectedness. He just knew how to act - what was a bad decision in life, and what was a good decision.
I don't know if its wisdom, intelligence, experience, or an innate thing. But some people just seem to be 5x faster weighing the really tough decisions, and making the RIGHT decision that seem super simple in hindsight.
Vast majority of people get too caught up in daily noise, fear and greed. They stumble across the scenarios. They can SOUND good, but their gut is all over the place. Or they are too cocky when they shouldn't be. Experience and reps matter a ton. But again, some people...
Pounding an investment philosophy lesson into your head won't make you a star. We all consumed it. Its baseline at best maybe. Flipping enough rocks + being god like with the above 3 traits will make you lots of $$$
Follow-up question: can the judgement be taught?
I feel like I’ve gotten better at it with practice and by spending a couple years on the buy side, surrounded by people who know more than I do, but It also feels like you’re kinda screwed if you didn’t buy a lambo with your day trading gains by the age of 25.
You should feel no external pressure from what peers or others have. Thats the thing ya know. Fear and greed. FOMO. Fear of not betting enough. Fear of your losses. All of these can drive unforced errors in the markets.
Judgement is less taught, and more absorbed by observing those around you and flipping stones as much as possible and pushing yourself aggressively into zones of discomfort and learning, rather than passively sitting along for the ride. You need to dedicate time towards building healthy habits and temperament. It is a muscle. Your emotional response to stimuli is a muscle that can be trained after years of hardwiring, but it takes time.
The IT factor comes from your ability to be appropriately confident in your decision making. As Buffett said, you should feel no pleasure from being with the crowd, nor being against the crowd (or whatever it is).
Head down, eyes open, intellectual honesty. Don't rely on other people to confirm your thinking. Know whether or not you are just looking for confirmation bias. I could go on and on...
Anyways, ya it can be learned/absorbed, but it helps a lot to work with/under someone who has it, and that is hard to find and know ex ante. And you need to work hard at it and be honest with yourself. Sometimes the answer is you just aren't likely to be that 1% outcome in this field. That is good to know sooner than later.
Agree with this, some people seem to be born to just be good at investing, doesn't mean they aren't putting in the work and effort that others do but they can quickly grasp the main point that others miss. Your point on sounding good was mentioned by Paul Marshall that there can be an inverse relationship between a good communicator and good stock picker, which I do agree with. I think the 2+2 is just a good filter for candidates but not a filter for the 'it' factor.
How can i get to this level?
Yes, it's easy to spot if someone doesn't have "it." The "it" is intellectual curiosity + work ethic. An indicator that you have "it" is if you would be willing to do what you do for free.
dumb boomer shit
no one is doing this for free
nah he's completely right. It's not whether you would sit at a moniter for 60 hours a week reading 1000 pages of equity research & filings a day for free. No one outside of the aspiest of aspies would do that. It's whether your out of work hobbies / what you do for free resembles investing or whether it resembles gambling or chilling or thrill seeking or any other cluster of behavior besides deep analysis. That's not to say that the task itself has to be like investing but rather how you approach it. For instance there are many different types of golfers. If you're someone who grinds tape of your golf swing, tracks all of your shot metrics, maintain a shot diary tracking your thought process on the course, etc. you probably have the analytical propensity to be a public market investor. Whether you also have the brains, discipline, connections, eq, etc is a whole other question but all of those things combined don't matter if you don't default to deep analysis in virtually everything you do. If you can't structure a training process / just want to pound balls on the range, don't track your on course metrics, etc. that's great, I have friends like that who are 2 handicaps, way better than I likely will ever be and also have friends who don't because golf isn't about getting better for them so much as enjoying themselves but I would say confidently they wouldn't make good public equities investors.
And your reading comprehension ability leads me to believe that you do not have "it"...
+2 this +2 that means you can work >80hrs, but as a consequence of the intensity many juniors don't know how to "think".
What I mean is that beyond the macro-level, they don't really know what's going on in a business to develop insights on how to make meaningful suggestions/decisions. Resulting in a zero "It"/X-factor. This is why the IB AN who become PE As struggle and bounce from role to role without a compass of why and what next.
Think of a different candidate for example, they've worked ~5yrs in a company that's doing interesting things in a specific industry, and maybe they're acquired. His former colleagues now go to other companies in the same industry. This candidate worked in an entrepreneurial environment, got to see operations day in/out, was living their industry, understands how/why operators make key decisions and the impacts. Also, now that their colleagues are now at other companies within the industry, our candidate has a stronger network within that industry. If candidate decides to go to B-School for IB/PE, by the time they're graduate that network is a bit more senior to where they're likely making key decisions in those organizations. That can lead to deal flow, insights, and and/or general business development.
Who do you think would have the X-factor here? X-factor comes from being seasoned in the game my friend.
This modern philosopher says you can't start with the X-factor. You have to acquire/build the X-factor:
"It" = the ability to consistently make money.
That may show up a handful of characteristics/traits such as:
But these are generalizations, so let me give you a concrete example.
There was a guy I worked with in ER who, on his 1st day getting his liscenses, was already talking to buyside clients like he'd been covering the industry for a decade. In every call he was extracting information from clients on their views, testing them with his own, and gathering the "buyside consensus" figure himself. He was always asking questions about adjacent industries and would regularly be in the office late even if there weren't earnings.
He quickly moved to the buyside at a family office as the only analyst under a PM that just left a top tier fund. He immediately made a killing on a handful of companies going public and quickly got the attention of the top tier fund. They poached him to join as a senior analyst where he expanded his coverage. Less than 2 years later he joins an MM as a PM with his own book, all before turning 29. At this point he's now been a PM for nearly a decade running his own book.
2+2 is the most cookie cutter thought process out there and doesn’t lead to revenue generation. You’re spot on with the traits you flagged. Cant train that into someone
I think there's a contrarian mindset that all good public investors have to some degree. Public investing, no matter the style, ultimately boils down to a parimutuel betting system where you're taking the other side of some common belief about a business.
And I've notice a lot of PE people are strikingly non-contrarian. Like aggressively skeptical of anyone who questions the status quo on business, world events or anything else.
I'm not sure why that is. But the prevalence of that personality type in PE, compounded by the wash-rinse-repeat nature of a lot of PE strategies . . I could see how that yields candidates for HF that lack "it" when it comes to developing market-beating ideas. through a contrarian lens.
Counterpoint to this is that making money is the most important thing, and following the trend will get you there A LOT of the time (not all). I think Druckenmiller said something along the lines of being contrarian is great, but making money is better and 80% of the time the consensus trade is right. I don’t disagree with you though - by definition you need some sort of edge to create alpha.
Yeah good point, I hear that. Maybe contrarian wasn't the word I should've used. I knew it at the time I wrote it, which is why I hedged it with "to some degree." I was trying to emphasize more your last point: you want to have some insight the market hasn't fully baked in. And PE people in my experience seem weirdly oriented away from that. In my own firm I'm always the guy asking "if this is such a good opportunity why are we so lucky, there's other smart people out there, why are they ignoring it?" And those kinds of questions always have everyone looking at me askew.
Contrarian for the sake of being contrarian won’t make you money if you’re talking about specific stocks rather than buy the dip for a broad based index.
PE folks do hide behind consensus (as do some research analysts I’ve seen), but my own observation is that PE folks are also very married to their opinion once they form it. They don’t adapt to new info or changing circumstances fast. It probably comes down to how people have to defend their thesis to their IC, and some ICs will just put pressure on you to see how you react.
also, going to be an unpopular opinion but a lot of people in PE don’t have a basic understanding of the macro landscape because it isn’t something you spend a lot of time in the IC discussing, but it’s sometimes a very important thing for an investment.
Finally, if you’re a PE junior and you don’t develop an independent POV, you’re just stuck under seniors who may be deploying because it’s a competition for funds or who are just trying to get that MD title, not because it’s a good investment.
Have you gotten where you are by following instructions extremely well?
Have you had a lot of opinions over time, and been right more often than not?
The problem in PE is that an answer in the affirmative to your second question is not rewarded and sometimes even punished.
I don't really think it's a "problem" per se, if I haven't that issue in PE, I would have stayed. I think PE r/r is better.
When I run into my old bosses from PE, they say I was a difficult employee.
Ultimately it's just intuition / judgement. That's the one part that you can't just model in and it all feeds back into this. It's built over many reps but at some point, you either have that or you don't -- the best investors are both made and born
Intuition + risk management. Basically, an understanding of which ideas are likely to have a positive EV and being able to size your risk appropriately, hedge and cut risk in the right moments.
Everyone in this line of work has no shortage of good ideas and most investors are positioned the same most of the time. A lot of how you manage your risk around largely determines how good of an investor you're likely to be.
Yup pretty much this. Making money it market neutral particuarly is just trying really hard not to lose money and pressing a few good ideas every year. If you protect your downside and survive eventually you will make money.
what are good ways to train intuition?
Make mistakes once and learn from them
Ive found the highest correlation of somebodys ability to make money is typically who they trained under who molded their process. Basically all of us know the same financial concepts and read the same source material so knowing a process that works and you can adhere to is, while also understanding you need to adapt over time as the market evolves.
Every PM has a different edge that they exploit, and usually it only works for a definite period of time before the market erodes it. Of the best PMs i know one was just a savant who was able to see things in the market others were not, was extremely contrarion and would make money going all in on trades others were dead scared of. Another PM really knew his sector better than others and how to truly value his companies. Another PM would just outwork everybody and dial in his models 100 hours a week grinding out 1-3% EPS beats/misses in a market neutral book. The best of these PMs are willing to change their process or alter it when the market no longer is congruent to their way of thinking.
Some people just have a strategy or trading / investing style that works. That can be taught or people stumbled into it or figured out.A lot of times it’s right place at the right time. Eg growth when it’s working. Or value when it’s working. Or momentum. If you’re smart and hardworking, you’re more likely to create your own luck. Or if you have a lot of experience, you’ll see things better too. it’s having the confidence to act on your instinct and keep going when you get things wrong. It’s boiling the key things down to something simple and seemingly obvious, and acting on it despite a lot of uncertainty.
Knowing when to sell is the harder part
"Mr. Madison, what you've just said is one of the most insanely idiotic things I've ever heard. At no point in your rambling, incoherent response was there anything that could even be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul".
Following
The book “the right stuff” by tom Wolfe touches on this
Even though I’m a macro guy with only indirect PE exposure, I’ll take a swing—feedback welcome.
Private equity is fundamentally a long-duration asset class where you’re only truly marked at entry and exit. Everything in between is mark-to-model—and a lot of that is bullshit. Pro forma EBITDA, IRRs, interim NAVs… largely bullshit. Meanwhile, GPs are charging alpha fees for what is often just levered small-cap beta with a time-varying illiquidity premium.
That said, the model does work in its own way. The carry structure creates strong incentives to manufacture value—financial engineering, operational tweaks, roll-ups, carveouts, capital structure games. Performance is judged over multi-year horizons, and the stress is episodic but intense: entry, exit, fundraising. That’s the job.
Where people struggle is crossing into public markets, because the feedback loop is completely different. You’re marked-to-market every second. You might have a great long-term thesis, but you’re not the operator executing it (activists aside), and you don’t have the same ability to engineer outcomes with leverage and structuring. More importantly, your PM—and your investors—don’t have the luxury of waiting around for your 5-year IRR to show up.
So the game changes. You can keep the same strategic lens, but execution has to become tactical. You’re trading around positioning, flows, earnings, macro shocks—constantly recalibrating. If your pitch is still “long-term value creation,” a fair question is: why not just replicate this with a 13F tracker and save the fees? And if you’re low-turnover, you’re probably just loading on known factors anyway—which doesn’t fly in a multi-strat.
So you shorten your horizon and widen your input set. Now you’re tracking positioning, flows, macro, fundamentals, sentiment—trying to synthesize all of it in real time. That’s hard. Aggregating signals is messy. Systematizing helps, but it’s a grind. And if you’re relying on “intuition,” good luck explains that during a drawdown. You need to try harder to explain the explicit strengths and implicit weaknesses of your strategy, logically and empirically.
This is a very different skill set from PE. Even if you’re good, you don’t want concentration—you want repetition. More shots on goal so you can separate skill from luck. A 60% hit rate is solid, but it still means your screen is red 40% of the time. Most people can’t handle that psychologically. They think they can, but they can’t. Their IQ edge gets overwhelmed by EQ decay.
Even if temperament is fine, process issues creep in. People overfit to what they’re good at and build hidden exposures. Then a macro shock hits and suddenly everything is crowded the same way. That’s when you realize you weren’t running a diversified book—you were running one trade in different wrappers. And by then it’s too late.
Meanwhile, private markets have gotten crowded. The illiquidity premium has compressed, but marks haven’t fully caught up. There’s a lag between reality and reported performance that just wouldn’t survive in public markets. You’d have been stopped out multiple times already.
Private markets are like fencing. Public markets are like a knife fight. Faster, noisier, less forgiving. You need a different toolkit.
None of this is to dismiss PE—it plays a real role in capital allocation and operational improvement. But let’s not pretend the environments are comparable. One has delayed feedback and narrative smoothing. The other is continuous, adversarial, and brutally transparent.
The X-factors to me are self-awareness and the ability to think for yourself
Self-awareness because lack thereof is the root of all investment biases. Being able to control one’s emotions is critical to making decisions under uncertainty. You have to be able to recognize when your thought process is being shaped by outside influences or past experiences that may be having a detrimental effect on decision quality. I’d posit that most people do not have this. Go to any investment conference and just observe the behaviors of those around you. I don’t know what goes through some people’s heads, but I can tell you they don’t know what is going through their heads either.
The ability to think for yourself does not necessarily = contrarian mindset. You should approach every piece of information as a skeptic, but viewing one’s self as a contrarian sometimes leads to inflexibility to the possibility that the consensus view is the correct view. You have to be able to do the work, seek views from each side of a trade, and then appropriately weight the evidence to form a conclusion independently. This can be hard when the majority of the publicly available information coming out of a company has a bullish framing to it, which typically gets amplified by the sell side trying to maintain/cultivate their relationship with management.
IMO the 2+2 track is a ‘follow-me’ track and the roles themselves involve ‘do what you are told’ workflows. It is not a track that encourages original or skeptical thinking nor self-reflection on process quality as the process is given to you.
That doesn’t make the 2+2 a bad path, it is actually a great path for one’s LT career, but it doesn’t cultivate the skillset that enables one to have success in public markets where the day-to-day is highly dynamic and making and losing money is more tied to the changes in the expectations of others vs the fundamentals of the business in front of you.
Piggybacking on this. What about experienced and high performing investors at separate internships telling you they think you have 'it'?
Always felt very nice, naturally, when I was told that but also keep/kept thinking it was difficult to know given how young I am. Since there are some experienced ppl on here and it' probably easier to be fully transparent anonymously, thought I'd ask.
Another question I have is – does it differ between strategies? Seems natural to me that the 'it' factor could be very different for high net long-biased strats vs mkt neutral
Good question, and you're right that the answer is context-dependent. But I'd push back on leaving it there. The 'it' factor is like pornography — you know it when you see it, but's not necessarily easy to articulate. So let me try to make it more tractable.
Think of investment strategies as a 2x2 matrix:
These are continuums, but the taxonomy is useful. I'm a semi-systematic macro investor who's spent time in the bottom-up world, so I have some experience across these domains.
The cognitive signatures differ meaningfully across the matrix.
Top-down investors tend to be Platonic — success is determined by your ability to think in systems, hold multiple causal chains simultaneously, and update priors when models break. Bottom-up investors are more Aristotelian — detail-oriented, inductive. The caricature is real: top-down investors think bottom-up investors can't see the forest for the trees; bottom-up investors think top-down investors have their heads in the clouds.
The systematic/discretionary axis cuts differently. Quants need quantitative rigor and obsessive attention to detail — the signal is in the residuals, and sloppiness is fatal. Discretionary investors need logical rigor of a different kind: judgment about which factors matter when, which requires pattern recognition that's hard to systematize and even harder to teach. Quants think discretionary managers are flying by the seat of their pants. Discretionary managers think quants lack creativity and common sense. Both are right.
So what is 'it', precisely?
I'd decompose it into two things:
When you're junior, you're mostly evaluated on lower-order skills — technical knowledge, analytical precision, work ethic. These are necessary but not sufficient, and frankly not 'it'. The harder thing to evaluate early is whether someone is a good strategic thinker and can execute - these are orthogonal skills. Here's what I think experienced investors are actually picking up on when they say someone has 'it' — even at an early stage:
On whether it differs by strategy — yes, substantially.
In long-biased, high-conviction equity: 'it' looks like the ability to develop deep, differentiated views and hold them through volatility. Temperament — specifically the ability to be right and patient simultaneously — is underrated.
In market-neutral: 'it' is more about intellectual precision and the ability to identify relative mispricings. You're punished for macro contamination. The cognitive profile skews more analytical, less narrative.
In macro/systematic: 'it' is largely about how well you understand your own edge and its limits — regime awareness matters more than raw intelligence.
One last thing, since you mentioned you've been told this multiple times.
Take it seriously, but not uncritically. Senior investors are good at spotting pattern matches to people who succeeded — which isn't always the same as spotting genuine talent. The most useful version of that feedback isn't "you have 'it'" — it's understanding specifically what they observed. Push for that when you can. The answers will tell you both something about yourself and something about how that particular investor thinks about what matters.
* Credit to Claude for organizing my unorganized first draft.
Luck is one of the largest factors
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