What is the edge that the elite have

Saw that thread recently about that guy getting shit on for realizing that he wasn't smarter than everyone else. Got me thinking: what makes the elite of finance so successful? I'm talking about the guys worth 1 billion+. It seems like almost everyone I've talked to in the industry is extremely intelligent, has great vision for their career, an extremely solid work ethic, great technical skills and is easy to talk to. So what sets the elite apart from the moderately successful. What did Warren Buffet do differently than some MD or VP? I know there is also probably a good amount of luck involved but would love to hear thoughts. 

 

They took a risk and was rewarded for it. You only observe winners. You can't tell the risk of a decision just by outcomes alone - you can justify anything in hindsight, the human brain is extremely good at cooking up narratives.

Speaking about Buffett specifically, from a pure finance view cuz that's what we do, he took certain factor tilts and held onto them consistently over monster time periods. Read the AQR paper 'Buffett's alpha'. After controlling for his factor tilts i.e., alternative beta, his alpha is statistically insignificant. Does that mean he wasn't a genius? Ofc not - he's an investment genius. He intuitively discovered factor investing, after getting influence from Graham, Fisher and Munger, literally decades before the rest of the world caught up.

From a non-finance view (and this is where it gets super subjective, debatable and unfalsifiable), Buffett oozes wisdom and energy that very few people have. He answers thoughtful questions intelligently and wisely for 6 hours every year into his 90s in the Berkshire conference. How many people have that stamina?

 

I’ve always disliked how people are so quick to dismiss investing in “factor shifts” as not a source of alpha and strip it out. If you correctly predict the next hot factor and overweight it, you are outperforming due to skill. If you keep reducing any sort of outperformance to factors on factors on factors it’ll just show there’s no alpha anywhere and no room for outperformance when there clearly is.

 

Not much secret beside being a bit of a contrarian, having luck, and checking the box on all the other necessary traits to succeed: Work ethic, intelligence, good education, etc. 

Instead of Warren Buffet we could have Hashan Jamson (made up name) being the most successful investor worldwide and Warren Buffet being just another average guy from Omaha. But because of luck he is where he is and the other guy got lost in history. 

Contrarian also implies a high risk element. The opposite of being a contrarian is being a conformist or extremely comfortable in a place in life to not have this desire to take huge risks. So many people have a 7 figures compensation because they're the creme de la creme, they fit all the boxes: education, character, work ethic, etc. etc.,  but they lack the same mindset as Schwarzman for instance to go out there and do something for themselves taking a huge risk (again, they don't want to be contrarians).

For instance, I recently read What It Takes by Schwarzman and when he wanted to launch Blackstone he went to multiple investors to ask for money but all of them turned him down. The last meeting with an investor he had for his first even fundraising tour, the last investor of his list, was a Chinese/Japanese fund/bank. This investor only invested a huge sum of money because they wanted to enter the US market in that moment. If Schwarzman would have missed this investor or he may have started his fundraising 2 years before (no interest in US by the investor) or 2 years later (already in the US with another fund), he may have missed this investor and Blackstone wouldn't have come into existance, making Schwarzman just another executive in Wall Street, albeit a very famous one.

 

Site ate my response.

Short answer is that it is all luck and survivorship bias, nothing more.  Warren Buffett is very smart and very hardworking, but not any more so than thousands of other people.  This is what books like Black Swan imply, by the way - Warren Buffett is inevitable, because statistically someone is going to be that successful.  That isn't take anything away from Warren Buffett necessarily, but merely to caution against thinking that he's somehow smarter or harder working or has some special sauce that anyone else doesn't.  

This is all doubly true for someone like a banking MD or a trader.  I know people who sit in enviable seats at hedge funds and PE shops, and made mid seven figures a year in their early 30s.  They're good friends, but they're not any smarter or harder working than the friends I have that make 1% of that in a given year.  They're probably not any smarter or harder working than most of the people on this site.  They weren't necessarily more qualified for their job when they got it than swarms of other people applying.  They got lucky.  They have the humility not to think that their success is proof of anything innate.

Wealthy people want you to correlate their net worth with something intrinsic about the, because they feel the need to justify why they get paid orders of magnitude more than someone else to do something that is only marginally harder, requires only marginally more intelligence, and may not even have marginally more social utility.  It's a trap you shouldn't fall into.

 
lake_michigan

Typical ignorance from Ozy. Following your logic Aaron Judge of the Yankees isn't more talented than others, just got lucky... lol

Yes, because Aaron Judge famously made his money in finance.

I know that the school system has let down many kids like yourself, but this lack of basic reading comprehension is saddening.  Even IF it wasn't obvious from context that we were discussing finance (which is why there are lots of references to managing directors, traders, or private equity instead of center fielders and quarterbacks), OP was explicit in their reference to "the elite of finance".

As a rule, don't start accusing other people of ignorance, or being illogical, unless you're 100% sure that you actually understood what was being discussed.  Since you very clearly didn't, I'm going to advise you to sit back and let your betters talk - while luck plays a huge part in who is successful in finance, I can state with some certainty that you're not one of the people smart enough to be capable of that level of success.  I'd put money that most people who succeed on Wall Street can read beyond a 3rd Grade level.

 

People sometimes attribute success to luck (among other factors and not saying these people are necessarily incorrect). In my opinion, you can set yourself up to an extent for luck (and consequently success). For example, if you enter an industry with strong tailwinds, you might increase your chances of "getting lucky" and rising with the tide. Conversely, in a headwind-laden industry, you might decrease your chances of "getting lucky".

 

Seeing some posts pointing to Buffet, and it no doubt he is a genius in some form, but it also takes extreme psychopathic and/or narcissistic traits to get to and stay at that level. If you think otherwise you are either retarded or have those traits.

 

I agree across  the board, but as to Buffet he is very down to earth, lives in a 600k dollar house, and eats at Mcdonalds everyday. I think that he is the outlier that really cares about his family and hobbies, and doesnt exhibit those traits. Not to mention he's donated over 50 billion dollars.

 

Warren Buffet, the pawn of all pawns. I think it is a misnomer to say that because has some normal aspects to his life (he eats McDonalds and owns his first purchased home) he is a “down to earth guy.” If you’ve read a lot about his life (books, articles, etc.) throughout the years it is all the same talking points. I am sure most of it is true, maybe even all of it, but if you think someone like Warren Buffet, one of the most forwarded thinking minds of our time hasn’t calculated how he should portray himself to the public, you need to start thinking outside the box a bit more. Especially considering he has extreme influence in many circles. Furthermore, donations don’t mean as much as you think, it all depends on where its going to, who is handling the money, why he is donating, etc. I highly doubt it is because he just felt like giving away 50 billion, it might be a secondary motivation, if that, but knowing he is a ruthless businessman it would stupid to think there aren’t significant strings being pulled with every move he makes.

 
Most Helpful

There's stuff you can control - work ethic, perseverance, research habits, etc. and there's stuff that you can't, like baseline intelligence, luck and timing.  

Everyone in the industry is hardworking and educated.  When you read the stories of who hits the biggest in addition to luck and timing it also comes down to these 4 things:
 

The ability to recognize a prime or unique opportunity - most of us just have textbook knowledge.  Few can properly see what isn't there or already established.  It's why the elite college professors can teach this stuff and even author book on it but haven't "cornered the market" the way a Buffett has.  

The willingness to act on it- i.e. - the ability to take risks.  We do not all share the same risk tolerance for a variety of reasons.  There are people with above average to genius-level intellects who are perfectly happy to take the high salary and corporate perks for as long as they can get them, which is why this stuff doesn't necessarily correlate with raw intelligence.  

I'm positing a 3rd factor here - the ability to "make things happen".  This one is even more nebulous - it requires a combination of unique interpersonal skills (to recruit investors, or convince people to let you run with an untested or unproven thesis on their dime), an experimental mindset (learning from failures or being able to make calculated adjustments and persevere), and the sort of passion for the activity that enables you to override your emotions when things get tough.   I'm thinking of personalities like Michael Burry

Even for those who have these traits, the probability of failure is still massive.  I think what also separates a Warren Buffet is a 4th factor - knowing when to divorce himself from the analytics. I call it "Riding your values".   One thing Buffet values above all else within his portfolio is stability - he doesn't chase trends but looks for things like intrinsic value, stable business models, stability of returns and management teams, dividends, etc.  He doesn't respond well to flash or excitement.  He'll take something steady over something more volatile with huge upside.  Humans tend to go in the other direction, likely because they have no strict value set to ride when it comes to investing. 

The odds of anyone nailing these 4, and having perfect luck, and then perfect timing are extraordinary to say the least. 

 

Risk taking is the big one. I know that I am fairly risk adverse and favor a stable income and safety/security that a BB provides over trying to be some billionaire. I am a top performer, jumped rank very quickly and am incredibly motivated to continue to advance and hopefully hit MD one day.
 

However, this is peanuts relative to how big you can hit on an entrepreneurial venture. You can be the hardest working, most politically savvy office worker ever and clear 7 figures but you’ll never be a billionaire. I think giving up the safety of making decisions for a corporation vs making decisions with your own money is a huge difference. Not many people are willing to take out a second mortgage, cash advance credit cards and take a massive risk, those that do are likely to become billionaires (excluding the family money types) . I’m sure there are rockstars in corporations across the world who are as smart, hardworking…etc as a buffet or similar but will never hit that level because they either don’t have a unique idea/vision or are more risk adverse. The Buffets of the world are visionaries and risk takers. The MDs are very good at what they do. There is also a much higher luck requirement for becoming a new money billionaire than a new money MD. 

 

Id non officia porro rerum voluptatum. Distinctio esse consequatur quibusdam aliquid id iure. Inventore laudantium a dolores vitae officia in. Fugiat unde natus occaecati reiciendis est dolore numquam. Libero cumque dolorem voluptatem veritatis corporis quod fuga magni. Quidem ut voluptas neque et voluptatibus. Et consequuntur ex aut dolor ut.

Dicta distinctio et quo sunt inventore quia. Temporibus accusantium rerum ipsa vel nulla molestiae. Ipsum dicta eum tenetur ut veniam et.

Dolores cumque sed placeat temporibus quisquam maxime amet consequatur. Aut sit nesciunt hic eveniet et itaque.

 

Numquam quo fugit quo commodi nisi qui repudiandae. Et dolore explicabo in ipsum eum consequatur. Qui nisi eum dolor ipsam. Voluptas accusamus reiciendis saepe nihil quaerat. Provident reiciendis aperiam maxime quod et est. Ducimus odit libero in culpa optio non eius.

Qui quisquam soluta et pariatur rem. Nisi nihil vel veritatis praesentium alias.

Laudantium ut magnam cum et. Amet molestiae et mollitia consequuntur et voluptate ut.

Eligendi aut et enim facere et. Soluta iure optio inventore est et magni in. Magni dicta placeat libero est quo.

Career Advancement Opportunities

April 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. New 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

April 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

April 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

April 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (205) $159
  • Intern/Summer Analyst (145) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Betsy Massar's picture
Betsy Massar
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Secyh62's picture
Secyh62
99.0
5
CompBanker's picture
CompBanker
98.9
6
dosk17's picture
dosk17
98.9
7
kanon's picture
kanon
98.9
8
GameTheory's picture
GameTheory
98.9
9
numi's picture
numi
98.8
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”