Underrated Skill in Investing

Understanding working capital

Intuition (you got it, or you don't)

Discipline

Having the ability to be pessimistic, especially in our current climate. Mind you, I am not saying be a sceptical bear who believes the markets are rigged or anything like that (not saying they are or aren’t, just saying i’m not commenting on that).

I am more so referring to not getting excited at every investment opportunity that comes your path. You need to be able to be quite critical and break down ideas, especially in an environment where countless companies are littered with buzzwords for the specific purpose of exciting investors. Really sit down and try to break companies apart, and try to look for what might make them a poor investment as opposed to what might make them the next Amazon.

Healthy skepticism will save you a lot of money in the long run, and really help you defend your theses.

Banging the table when you believe in an idea and not being scared away from seniors having the opposite opinion

I really like the bottom half of your answer because of the maturity of your thought process.

How do you go about understanding what is priced in? Do you talk to the top holders? What the sell-side is writing about?

Also agree that pitching/selling is a skill that many analysts lack, but I wouldn't call it "underrated", but would characterize as "difficult". I think most people in this business are aware of the importance of selling an idea, but they are not serious about it and do not take the methodical approach that you seem to be taking to be effective in their work environment. There are a lot of smart people that know the ins-and-outs of the companies they cover, but when asked to succinctly make a pitch they end up with brain pukes or come off as emotional.

I would chime in with my 2 cents - the people skills needed to build relationships with management and other stakeholders. I feel that most analysts view this as a paper job and use management meetings as an exercise in pure information extraction and notetaking. It's non-stop, one-way Q&A, often on line items that's really not even appropriate to ask the CEO (e.g. what is your cash taxes?). They don't add value to how management should think about market perception, provide 3rd party input on strategic thinking, and are not interested in who they are as people. I think this is a grave mistake - if you can get the CEO to think of you as a trusted source of capital market advice and a friend, you can learn a ton more about his/her business and industry that will give you an edge over other participants in the market. You also run into a lot more interesting private capital situations this way, being their first call and trusted "partner" even if you may not be the largest holder of their stock/bond etc.

I think something that is helpful in general is to be skeptical and doubtful, of both yourself and the world, and always be questioning your own assumptions and those that others might be making. If you see everyone around you saying the same things and using the same approaches, it's worth thinking about why they might be wrong and what market conditions would cause them to be wrong. Jim Simons said in an interview that he hires accomplished scientists not because of any specific skills they have, but because they tend to have this kind of skepticism and outlook on their own work.

Aside from what Secyh62 said, at the moment I’d say it’s 1) being comfortable with not knowing everything, 2) understanding your biases, and 3) knowing how to stay humble. These two books in particular by Annie Duke and Howard Marks helped me improve my thinking if anyone’s interested.

The reason I said “at the moment” is because I probably would’ve listed a separate set of skills 3-6 months ago, and hopefully I’ll have a different answer in 3-6 months too. Your answer changes as you develop, and it gets more nuanced each time around.

I think 1) and 2) are self-explanatory, but I wanted to expand on 3). I’ve been researching investors who were vocal about their positions/views and subsequently got blown up (just to identify some characteristics to avoid), and one common trait that I’ve found among them is not knowing how to stay humble/respect the market - thinking everyone that’s not on their side of the trade is an idiot, and not willing to accept when they are wrong. I can see this happening especially if someone’s had a couple of good calls in a row, but that can’t let you think you’re smarter than everyone. Of course, that’s a whole lot easier said than done because no one wants to admit they were wrong and sell at a loss.

"When the facts change, I change my mind. What do you do, sir?" - John Maynard Keynes

Being able to frame and analyze a business outside of the framework laid out by the filings and by the sell side. I always try to read about the company or product from a non-investor perspective first or model how I think unit economics might work and then check that against reality. Sometimes the reality of a business is quite a bit different than what the mgmt and street frame it as - and for shorts, validating that disconnect can do wonders for conviction, staying power and alpha return and sometimes if the market just never figures it out, you can keep coming back to the name and milking it when it overheats

Understanding the ins and outs of reporting, aka what companies can hide without disclosing or making outright apparent. Also, appropriate questions to ask management during earnings calls (tired of sell-side oriented, help me w/ my model questions....generally low value from experience).

Great posts so far. My 2cts: Ability to hit the brake and cut losses.

1) Pressing your winners 2) Not letting your winners become losers

Some of the worst positions I’ve ever taken have started off massive winners and ended up losers. Getting rid of this has saved me conviction and sweating positions I’ve become married to

Common sense. 

Risk management - No 1 on the list, knowing when to sell is key as is having internal draw down limits. Having conviction / discipline and riding down a name will is easy when its your PA, but try to explain that to your LPs (hint, you won't have any more LPs). Good analysts pick ideas, good PMs manage portfolio risk. I knew a few PMs who were keen on taking large swings on out of favor names we/ huge conviction going into the March / April selloff, these guys aren't around anymore. 

Timing - There are no good companies, just good prices! Knowing when to get in and out of a name is key to this game.

Managing Liquidity - Not understood well enough by most, but as someone who invests across the cap structure the price you see on the screen isn't always available. Key in fixed income land but also small cap equity land, these rando sketchy cheap small caps get so much cheaper in a market selloff.   

Ignoring ppl - We've all had these types of "friends" before. The ones who can pitch the perfect investment but somehow their names never seem to work out and they always chalk it up to timing or the market "missing" something. These ppl may be fun to talk ideas with as an analyst, but as a PM they are to be avoided like the plague. 

Everything that people said above is important. But the most important thing IMO is that you need to be at a place you can get a lot of reps. Nobody ever became good at anything without putting in thousands of reps. That's why this job is so difficult. You need to fuck up a lot before you begin to know what you like /don't like, what will work / won't work. The "blink" reaction that your PM has comes from fucking up hundreds of times over the course of his career. That's why I would never advise an analyst to work at a concentrated, low turnover fund. As prestigious as some of these places are, they don't actually provide good training for an analyst. Sure, you spend all of your time learning about a company better than the CEO, but that doesn't teach you how to become a better investor because you the velocity of ideas that you look at and make decisions on is not high enough. Unfortunately there is very little tolerance in our industry for fucking up. So it's a bit of a Catch 22. 

Good post