Observations From a Decade in the Investment Business

by Ben Carlson, A Wealth of Common Sense

It was recently brought to my attention that it’s been ten years now since I started my first full-time job in the investment industry. More experienced investors might not think this is a very long time, but it feels like an eternity to me considering my current level of understanding compared to what I knew when I first started out.

Here a some observations about my time in the world of investments from the past decade:

Everything is getting faster. This includes information flow, trading, instant feedback and analysis and market cycles in general. I’ve also noticed that performance updates can no longer wait — investors want up-to-the-minute reporting and the ability to track their market value in real-time. Time frames continue to shorten.

What college you went to doesn’t matter. The only thing a top tier college is good for is getting you your first job through connections. But even that’s diminished these days to some degree because technology makes it easier than ever to network if you know what you’re doing. I went to a small private Division III school without much of a finance program. Right out of school I felt this was a disadvantage, but looking back on it now it was actually a huge benefit because I ended up basically being self-taught. I didn’t start out with any preconceived notions or biases about the way the markets work based on textbook theories that are more or less useless in the real world.

First impressions can be misleading. I’ve found that the people that absolutely wow you right off the bat are usually over-compensating. The ones that try to convince you that they have everything figured out are not the people you want to be listening to in this business.

Career risk is highly under-appreciated. I could come up with a laundry list of the reasons for poor market behavior from professional investors. Career risk would be at the top of that list. Incentives matter a great deal more in the decision-making process than most realize.

Everyone is conflicted in some way. It’s impossible to avoid conflicts of interest in the financial services industry. It is a business after all. The trick is to understand how incentives drive people’s actions and look for those firms and individuals that are up front and honest about any potential conflicts.

Always have a spare suit coat in your office. This one has saved me a few times with last minute (or forgotten) meetings. Also, never wear a blue shirt with a white collar. The Michael Douglas from Wall Street shirt just screams, “Would you like to buy an opaque annuity with ridiculously high fees?”

You get to know people better over dinner or drinks. I’ve always found the standard interview process to be fairly useless. You will always learn more about potential hires or employers by going out to eat or getting a drink together than you do from a formal, sit-down interview. HR-type interviews are too stuffy and rehearsed.

It’s good to have an outlet. Whenever I have the time, I try to workout at lunch. In finance you spend most of your time in front of a computer, in meetings or on conference calls. It’s helpful to stretch your legs and take the occasional break to re-charge. I find I get the majority of my best thinking done during this time. My other outlet is writing, which I wish I would have started sooner.

Communication is a highly under-rated skill. I always assumed my analytical skills would help set me apart in this business. While you have to have an analytical mind to succeed in finance, without the ability to communicate with a variety of audiences — clients, colleagues, bosses, potential employers, etc. — even top-notch analysis can get lost in the shuffle.

There’s always going to be someone smarter than you. While it’s easy to mock the financial industry for their poor forecasting abilities and potentially damaging advice, there are an insane amount of brilliant people working in finance. At first I was always in awe of the smartest person in the room. But it’s worth acknowledging that intelligence without the requisite common sense does you no good. Brilliance does not always translate into success in the markets, and in fact, it can be to your detriment if it leads to extreme levels of overconfidence.

The best people in this industry are often overlooked.  Many great investors out there are overshadowed because they aren’t making a never-ending series of outlandish predictions, they don’t resort to scare tactics, and their main goal is not to push unnecessary products on unwitting clients.

Information is everywhere but people still choose to ignore the evidence. There are academic research papers and real world case studies on nearly every investment strategy known to man yet many investors still choose to wear blinders and only read that which agrees with the way they do things.

Self-awareness is essential for long-term success. I can’t remember exactly when it was that I had my aha moment, when I first really “got it.” But it’s made me a more clear-headed investor. When I say “got it” I don’t mean that I finally figured everything out that there is to know about the markets. Getting it to me meant that I understood that I would never truly have it all figured out. Learning would be a life-long pursuit but there was never going to be a time when I could say, “I’m finished. I’ve figured out everything there is to know about the financial markets and how to be the perfect investor.”

I think it was a combination of watching people much smarter than me fail at the game of investing over and over again and learning about the importance of human psychology on our actions and decision-making abilities. All of these cognitive biases I was reading about I had witnessed first-hand, either through my own actions or by watching other market participants.

The markets can be a very humbling place, but it’s not until you’re willing to show humility that you can start to see lasting improvements in your results over time. It can be extremely difficult for very intelligent people, with years of higher education and professional designations under their belt to be completely honest with themselves about the markets.

The markets are hard. Slowing down is important. A legitimate decision-making process that reduces the impact of your emotions is essential. But none of this is possible without the self-awareness to admit your own limitations.

Further Reading:
My Time on the Sell Side

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