Trial by Fire

Tom Brakke from The Research Puzzle had a really smart take on the investment industry in a piece last week. In the post he discusses how odd it is that so many investment positions are filled but there’s no training involved after the fact:

When you hire an experienced analyst, it’s understandable that the employer basically thinks, “We’re hiring you as an analyst, so be an analyst” — and that the analyst readily agrees.  Sure, there are some systems to learn and maybe some firm lingo, but on Day One the analyst goes about the work as she or he did before.  No plan for improvement and little possibility of it.

Brakke says that this lack of any formal training leaves it up to the employee to be trained by osmosis, which leads to a whole host of organizational culture issues. I think the same thing applies to many different fields outside of finance, as well.

I still remember my first day working on the sell side. They handed me a Wall Street Journal and emailed me a few of their most complex financial models and said we’ll see you at five o’clock to review. That was about the extent of my training.

There are some advantages to a trial by fire, including some self-discovery, but everyone benefits from a training program, no matter how structured or unstructured it may be.

When I started in institutional consulting straight out of college, once every couple of weeks the president of the firm would bring all of the junior analysts into the conference room for an hour long lesson. We covered everything from the basics of the stock and bonds markets to how the firm’s investment process worked and how to communicate with clients. This wasn’t a training program per se, but it was helpful because it let us know what the president was thinking. This made our jobs easier and his as well, since we knew what he wanted from us. And I learned a lot from a knowledgable investor.

But you can’t rush these things and hope to know everything right away. Some things only come with time and experience. I think the biggest mistake many young people make is trying to learn everything they can without the requisite understanding to apply their knowledge. Facts and figures are worthless without the correct perspective for actual application.

My boss that ran the institutional consulting business was an extremely intelligent investor. He’s been in the business for multiple decades and was always willing to share his acquired wisdom. When I worked there, he was mentoring an investor from another organization that we worked with. This protégé was eager to learn but didn’t have the necessary patience. At one point he said to my boss, “Can’t you just sit down with me for an entire day and teach me everything you know about the investment business so I can be as good of an investor as you?”

This was a good lesson for me in the industry, because early on I was the same way. I wanted to get there without putting in the time. My boss explained to us how this guy was never quite going to get it. You can’t simply learn to be a better investor over the course of a day, just like a textbook or seminar is never going to give you all of the tools you need.

I’ve now made it a point of emphasis to always be learning, whether that’s through reading or observing other investors. Most of the great investors share not only their successes but also where they went wrong. I like to pay attention to the mistakes others have made in the past and let them pay the tuition for me.

It also makes sense to keep an open mind and realize that there are certain aspects of the financial markets that you are never going to understand completely. I can’t pinpoint exactly when it happened, but at some point midway through my career I finally realized that no matter how much I read or how closely I followed the markets, I was never going to completely understand everything.

But this realization was probably the best thing that could have happened to me because it gave me the correct perspective on the markets. The big secret is that no one has it all figured out and once you recognize this fact it’s amazing how your entire thought process changes from finding the holy grail to continuously learning and improving.

The late Peter Bernstein, speaking in his mid-80s, following an illustrious investing and writing career, summed this up perfectly:

After 50 years I still haven’t got it all clear. Any that’s okay, because I understand that I haven’t got it all figured out. In a hundred years, I won’t have it all figured out.

Training by Osmosis (Research Puzzle)

Further Reading:
My letter to young analysts


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