Let’s indulge in a flight of fantasy.
Imagine you were putting together an investing super-being, stitched together from bits and pieces of the most admired investors of all-time.
Let’s not get bogged down with the blood and science of it. This is an investing newsletter, not a medical treaty.
You can even go grave robbing to dig up the bodies of long dead investing ancients if you want. We’ll presume we have the technology to make their brains tick again, and to send them back out in the modern uniform of chinos and a blue shirt to pick stocks.
In short: if you were a Dr Frankenstein charged with creating a market-beating alpha generator – or a Lewis Carroll letting your imagination run riot to conjure up not a Jabberwocky but a bionic hedge fund manager – what would it look like?
Here’s my best shot.
Brain – Jim Simons: The septuagenarian founder of secretive ‘quantitative trading’ hedge fund Renaissance Capital is something of a mathematics genius – or if he’s not then he’s close enough that a poor Fool like me can’t tell the difference. If you disagree, Simons has a $15bn fortune founded on ferreting out statistical quirks in market data that says I’m right.
Eyes – Peter Lynch: The peerless fund manager and author is best known for spotting consumer trends early and then finding a way to profit from them in the markets. Essential.
Ears – Philip Fisher: Fisher popularised the term “scuttlebutt” to describe how investors could read the trade press, cultivate industry contacts, and generally try to understand what was going on with companies through non-traditional channels.
Mouth – Howard Marks: The regular memos of his fund shop Oakmark Capital Management are essential reading. You could also do a lot worse than read his book, The Most Important Thing. Howard Marks is arguably the heir to Warren Buffett’s mantle as the great investing communicator.
Heart – Warren Buffett: I could have stuffed him almost anywhere in my investing being, but I’ve decided it’s Buffett’s fortitude and contrarian spirit that will be his endowment.
Appendix – Benjamin Graham: Working through The Great Depression, Warren Buffett’s mentor Ben Graham arguably invented the analysis of listed companies as we understand it. So widespread was Graham’s influence that he’s now almost redundant – but you can’t help suspecting there remain opportunities that only his genius could see.
Guts – Michael Burry: As made famous by the movie The Big Short, hedge fund manager Burry was one of the few who spotted the US housing market was headed for implosion. His bet against it took years to come to fruition and his own investors tried to bail on him. Strong-willed hardly covers it.
Feet – George Soros: The “man who broke the Bank of England” is perhaps the most famous macro-investor of all-time. Any time anyone says you shouldn’t pay attention to interest rates or currencies, point out that George Soros read such tricky runes to become one of the world’s richest men. Soros is flexible, seemingly happy to change his mind in the space of half-a-minute – and to alter his position accordingly.
Spleen – Me: I’m going to claim this organ for myself. In human biology, the spleen acts primarily as a blood filter. But it has long been associated with tempers, tantrums and other undesirable emotions. While I like the idea of ultra-rational investing in theory, in practice I believe we’re emotional creatures and we might as well accept it. I try hard to understand how we each may be responding to the market’s latest mood swings.
All the other organs – An index fund: When routine work is the order of the day, nothing beats a robot. I’d be more than happy to have cheap-to-own tracker funds covering everything my DIY investing super-being can’t reach. The reality is that after fees, a simple index fund will beat the average so-so fund manager over the long haul, anyway.
Be your own man or woman
I must admit that as I’ve thought through this mental exercise, the gruesomeness of it has got to me.
Imagine poor Warren Buffett’s heart having to beat to the drum of macro-trader George Soros’ dancing feet! Let alone the mock horror footage of me grafting Philip Fisher’s ears on to some unfortunate’s head…
Lewis Carroll’s Jabberwocky was a monster, I suppose, not some hip mythical Labradoodle.
But there’s a more serious problem with this mental exercise, too. Which is that in reality, my investing titan would be self-defeating.
It’s no good having Fisher’s ear to the ground listening for industry gossip if you leave all your investing decisions to algorithms like Jim Simons, or to have Soros’ genius for sensing when the market is turning if you’re going to buy-and-hold anyway like Buffett.
Certainly, I’d argue it is madness not to study the methods of the great investors who went before you if you aspire to achieve even a fraction of their success.
Equally, though, each of us is going to have to find our own style – or at least our own blend of styles – that best suits our temperament and perhaps the times we find ourselves in, and that can work together in a consistent fashion.
Having an “investing process” is the way the academics put it.
Rather than a blueprint for such a process, my flight of fancy is just a reminder that there are innumerable ways to approach the challenge of making money in the markets, as shown by the very different methods that all these legendary talents brought to their task.
Oh, and a reminder that you shouldn’t let my subconscious anywhere near an operating theatre...