I have never been a good investor. Since the day I started working, I had been through at least two or three recessions. In every of those recessions, I'd always stayed out, not wanting to log into my account to see the red indicators of the counters.
You'd think that people working in financial services will be more astute in terms of their judgement of public equities - what's undervalued or overvalued. But truth is: we know nothing about how public markets really work.
"The role of financial markets is to take money away from mediocre and underperforming companies and put it in stable, growing, high return on capital companies. "
Low risk investments such as fixed income instruments have an important role to play in the world of money management, especially when it comes to managing billions of dollars over long periods of time.
"Almost all of the real money made in those areas is made only by extremely patient investors who invest once every ten or twenty years, liquidate their holdings once a decade and spend long, long periods of time in cash.”
And when it comes to stock valuation, there are numerous scientific methodologies to calculate what the true value of a company is. But none of those scientific approaches guarantee any success in getting positive returns.
"Trying to invest in those companies based on an analysis of value is more likely to result in opportunities missed than it is make money. An approach that is much more likely to be successful is:– Investing in high quality companies after a market decline of thirty percent, and retaining the liquidity to build positions in those companies after a fifty percent decline in the broad market averages. That takes extraordinary patience, which is a matter of personality."
The goal is to be "liquid at the bottom" because "business cycles are primarily caused by the creation and destruction of debt. Those are functions of greed and fear, in other words of emotions."
It is said that "a long-term investor must be a patient person. A short term trader who thrives on, perhaps needs, constant activity is likely to be an impatient person."
I believe that Investing is an extremely and deeply personal thing. It's all about managing risk. Risk appetite is subjective. Each person can only figure what that is for himself/herself. No one else can do that. Once again, this is a personality issue.
This is also the same reason why I do not believe in seminars and workshops that preach about obtaining wealth by punting in stocks. I have nothing against the technical aspects (charting, valuation and analyzing financial reports). But in most cases, it tends to always be about extrapolating the future, which no one really knows.
"Successful investors...incorporate into their investment strategy, clear concepts of acceptable risk, what constitutes an acceptable level of inactivity and length of holding period after funds are committed. And successful investors stick to their strategy. That strategy – for instance sitting on cash, sitting on losing positions, sitting on winning positions — must be based on self-knowledge. If the strategy is out of sync with the personality, it won’t work, no matter how well it has worked for others."
[Takeaways, excerpts and quotes adapted from here.]
A thoughtful weekend read and a timely reminder for reflecting on all bad decisions made this year and in the last four years...
"Life is tricky. It is never clear when you are at your peak (and about to head downwards into a death spiral) or at your bottom (and about to skyrocket upwards to your greatest heights). Right now, you could be sitting at the very peak of your life (or you could be sitting at the very bottom of your life), and there is no way to tell which is which. It is the scary truth for all of us. This truth applies to people, companies, and countries. Change can happen gradually over time or it can happen instantly. For me, success is the greatest imposter. In life, business, or martial arts, winning is a falsehood. It seduces smart people into thinking that they are invincible. It tricks good people into believing that they are infallible. And it robs all people of reality and truth. Don’t believe the hype. And don’t eat your own bullshit. Or you will lose everything. The only antidote to the poison of success is humility, hunger, and gratitude. Stay humble. Stay hungry. Stay grateful. And outwork everyone. Always." - Chatri Sityodtong
For the want of money
The world was a very different place in 2006. We were about 2 years out from the SARS crisis, and it wasn't even considered a pandemic. I had completed my final exam papers, presented my engineering thesis and was comfortably placed in a French IT consulting firm, which at that point of time, was being subcontracted by Philips TV to develop a software prototype. The product was meant to be used for all of Philips' clients in the hospitality and healthcare sectors.
But I left within 6 months into my role. My motivation for making that leap was driven by
The fear of being stuck in an engineering job, working from 9am to 5pm everyday for the rest of my life, and:
Perhaps more importantly: The want of earning more money by being in banking.
That was primarily how the world of corporate finance appealed to me - fresh graduates bringing home $8,000 a month. No other career could offer that kind of salary, certainly not in the engineering world.
But I was not lucky.
My grades were less than mediocre and I had been in the 'wrong' field of study. I didn't even know what was a Bloomberg terminal, how to calculate a series of discounted cash flows, or the definition of enterprise value. I wasn't cut out for an investment banking ("IB") role. I didn’t get my $8,000 per month dream job but I eventually managed to join the valuations team of an accounting firm.
Trial by fire
I distinctly remembered my first day of work at KPMG. All eyes were on me as I walked to my desk. It was only much later in my career that one of my colleagues told me with a giggle: "We were all wondering why you - trained as an engineer - came here to steal our jobs."
So, it was with a bit of dumb luck, a vacant analyst position created by the timely departures of a few junior staff, and sheer persistence that landed me into a corporate finance role.
I had graduated a year later than all my engineering classmates, was also two years older than my male accounting-trained colleagues and four years older than their female peers. That made me the uncle of all analysts in the team, and for the longest time, no one could understand why I had taken a $1,000 pay cut from my job in Philips to venture into the unknown from a zone of comfort and familiarity.
Many times, I even found myself having to clarify the background of my previous job:
"No, not Phillip Capital the securities house - Philips, the TV company..."
Not a lot of people knew about this, but I was really scared during my first 6 months in IB. I was afraid that my line managers would deem me unsuitable for the job and ask me to leave. However, what they did do was make a bet that I would voluntarily leave within those six months.
This incident was later unwittingly revealed by a stranger who crashed one of our team drinks. I remembered him saying:
"Hey! You lost your bet. He's still here!!"
It is just one of those things people in IB like to do. It might have sounded condescending and insensitive, but you pretty much got to have thick skin in order to survive. IB isn't just about getting through the gruelling late nights and delivering on the number crunching. It was also about the harsh and toxic environment that one has to be prepared to put up with for many years to come.
The line is never straight
Today, I get a lot of questions on how to break into a corporate finance career whenever I teach at the Singapore Management University.
"I don't have any accounting or finance background, how do I get in?"
Ironically, most of the people asking me these questions have better credentials and working knowledge about the field of investment banking than I had during my time.
I tried learning about financial markets and their workings by punting in stocks during the bull market, which peaked shortly in 2007 and went bust later towards the end of 2008.
I'd watched the markets not to make money, but to experience first-hand how it was like to invest (or trade). It sounds unusual given younger people today are more investment savvy and have even more access to investment and trading platforms.
All in all, I don't have a straight answer for how to get into an IB role. I attribute most of this to being at the right place, right time and meeting with the right people (天时地利人和). That said, everyone has a different trajectory.
Back in 2006, I had found myself then in a somewhat employees' market whereby banks were poaching talents from the accounting firms often enough to create a vortex of hiring, and I was lucky to get dragged into the process.
Bankers during those hey-days were also raking in deals (most notably from the many S-chip listings) and taking home multi-year bonuses. I remembered hearing someone from one of the local banks earning thirty six months of bonuses. Even if his base pay was mediocre, the absolute quantum still sounded crazy. There was even word that bankers who got less than a year's pay in bonuses would jump ship just because they weren't compensated enough.
To put this into an average working person's context, imagine:
In just 12 months, bankers would have earned the equivalent of what everyone else outside of IB makes in 3-4 years.
To extrapolate this even further out - working for 7 to 10 years in IB implies that you could easily retire for the rest of your life. It makes everyone else's job look like a joke. And some folks in IB were still complaining.
More than 10 years on, the frenzy of hiring and huge bonus payouts have significantly subsided. But the toxic work environment probably hasn't. Many graduates today continue to worship the 'altar' of corporate finance and chase the prestige of being accepted into the bulge brackets. I don't blame them.
To paraphrase the words from a scene in Mission Impossible III said by Theodore Brassel:
It is obscene that bankers are paid so much for the work they do compared to most other careers. Easy for me to say "do whatever makes you happy" or "be open to other well deserving jobs as well" when I have personally gone through and benefited from the system.
Ultimately, everyone has to make peace with whatever career you have landed into. Many of my engineering-schooled friends are doing very well today, even having not gone into banking roles. Some are in sales, business development, entrepreneurs, etc.
Not everyone who is in IB is guaranteed lots of money and the promise of working on exciting deals. Most of the day to day work comes down to iterative (and sometimes mundane) research, spreading numbers and window dressing a corporate profile. As a junior or mid-level banker, you'd be lucky to get involved in and steer deal negotiations. You won't be a hero in the organization to say the least, but at least you're paid well and most likely be the role model or rockstar for many aspiring IB wannabes.
But more important than the prestige that comes with it, you really have to love what you do. The dots really do connect backwards. It is not so much about being "fast and furious", but whether you appreciate the dynamics of the job that you have chosen to be in and sustain yourself in that industry for a long time.
As I look back on my cover letter dated in 2006, I recall of how starry-eyed I was when I applied for a role in investment banking. I had been lucky, yet, at the same time, it also reminds me of how far along I had come: I applied for the money, saved some, spent some, invested some and lost most of it. I'd gained knowledge of the subject matter, technical skills and the experience, including the network of people, intangible resources built over the years, and spat out by the system.
But. No regrets.