January is nearly over, so it is once again time to look at the various errors, mistakes and bad calls that I made in the asset management business in 2011. I have made ‘fessing up part of my process – this is my third annual version (see my previous mea culpas for 2009 and 2010). I have made this an annual rite of contrition. Each January, I set down on paper my Mea Culpas – owning up to the errors, mistakes and failures that are a regular part of the investing process.

For most money managers, 2011 was a challenging year. But I am less concerned with under-performance as a Mea Culpa, choosing instead to focus on the process (for the record, we outperformed our benchmark, and did so with considerably less risk).

First the good news: Assessing what did right in 2011, there were plenty of things to be pleased with: The Macro calls worked well, we stuck to our discipline. We avoided the entire August collapse. Buying into the breakout in October, we quickly reversed ourselves when it failed. And when the signs were to go long and strong to start the year, I held my nose and did so.

As always, in the business of managing assets, there is always something new to learn. This morning, I want to look not at what I got right, but rather what I did wrong, where there is room for improvement. We will also revisit prior mea culpas to see where we have been fortunate to improve as a result of these annual lists.

Let’s have at it:

1. Running Assets vs. Managing a Business: It may be obvious, but these are two very different skill sets. I first mentioned this last year – and though these are supposed to be mea culpas, I have to give kudos to a pair of outstanding hires: Josh and Anna. They make me better, and for that I am grateful.

Possible solution: Learning to be a business manager versus an asset manager means reaching outside your comfort zone, educating yourself, pushing into new areas. But the key: Find more outstanding people and hire them.

2. Confirmation Bias: I find myself reading more of the analysts whose current views I agree with and less of those whose views are opposite my own. Off the top of my head: Laksman Athushan, Jim Bianco, Michael Belkin and John Hussman. I need to find people whose macro views differ from mine as well as those whose market perspective is more aggressive than my own.

Possible solution: Read more of the folks I occasionally disagree with like Doug Kass, David Rosenberg, and others. Worry less about hunting for that nugget of info and more on the process others employ to challenge my own views.

3. Articulate policy and principles: I have a pretty firm set of beliefs when it comes to investing (seen in about 6,000 posts on the blog), but I have yet to put it down in a short format. This is a function of laziness and fear of ridicule.

Possible solution: DO IT. Break the beliefs down into 10 key principles, post them somewhere, and review annually. Forget about the opinions of the public and focus on what matters most to yourself and your process.

4. Skepticism: I tend to disbelieve/distrust/ignore new sources of info. I have begun to grow cynical. This has led to unfairly dismissing new sources  of information/analysis/commentary. The secret to being skeptical — and to Sturgeons Law — is to not reject 100% of everything that comes your way, just the 95% that is crap.

Possible solution: Consider the what ifs before rejecting something. Might this analyst be correct? Might their process work out? Be more generous with your attitude rather than being so dismissive.

5. Communication: A new issue for me, as I added lots more individual clients. I was very inefficient when I came to communicating with both new and prospective clients. Its not that I didn’t communicate; rather, it was haphazard and disorganized. Too many phone calls, too many calendar conflicts.

Possible solution: Organize: Create a system of communication to both existing and prospective clients. Use technology, conference calls, webinars to reach people in a more efficient way.

6. Time Management: An annual issue, although I did get better at it this year (see #1 above). Focus more on research, writing, and asset management –let the rest come to you.

Possible solution: Prioritize: Do less of what matters least; Work with a daily checklist to make sure things get finished; Focus.

7. Clients: It is always a balancing act when dealing with clients. On the one hand, you cannot blow them off when they bring you concerns (its their money!). On the other hand, you cannot allow the investing public’s group mentality (or panic) to infect you. Further, we took some heat for calls that turned out to be correct, but in a few cases, took steps at the request of clients that lowered overall performance; that must stop.

Possible solution: Be proactive. Improve regular communication with all clients; Work on making sure they understand the process, our current thoughts, and where we are so as to avoid the 2nd guessing. Preempt the “My way or the highway” conversation proactively;

8. Undercapitalized: I worked on several projects where capital was a major issue. This is something that is singularly important to any new entity. The bootstrapping approach seems to work in very rare circumstances where there is an immediate influx of revenue, but for moist start ups, it’s a pipedream. You cannot grow a business when the daily focus is raising money.

Possible solution: Steer away from firms that have too little capital. Make sure that the structure is appropriate. Avoid the classic undercapitalized but over enthusiastic founders.


Follow up from prior year’s Mea Culpas

1. Too Many Equity Mutual Funds: I have always known mutual funds were a mixed bag, and last year, I finally did something about it: In my asset allocation model, I slowly replaced mutual funds with ETFs. A portfolio I took over began with 8 funds and 2 ETFs; that raio is now reversed.

Actual solution: Used more ETFs more to increase exposure quickly so we carry less cash sooner and raise exposure more quickly; Better to own positions with tight stops, or to own half positions, than none at all;

2. Putting Cash to work: Despite making the right call in early March, we legged in slowly. I am not suggesting that you go all in on a single day or week, but the process of going from 80% cash to fully invested took longer than it should have. Directly related to the two points above, when the market is rallying aggressively, we need to carry less cash sooner and more exposure more quickly;

Actual solution: iShares Barclays 1-3 Year Treasury Bond Fund – rather than sit with a 40% cash position – even for a month – the 1-3 year yields something, and if we are right on why we moved to cash, may even appreciate.

3. Focus!: We all have many items calling out for our attention; but having too much on your plate means things fall through the cracks (like that option trade!). Our modern short attention span society has the appearance of being more productive, but probably isn’t. Free association is great for creative brainstorming sessions, but winging it during execution means stuff is going to slide.

Actual solution: The checklist! When I stick to my TTD, I can be wonderfully productive. Must stay with that in 2010.

4. Health: After years of neglect, I promised myself that when I turned 50, I would start taking better care of myself. Your body is a used car, and if you want to get to 150,000 miles, you need to do more than put in petrol. (I was embarrassed to put this down as a mea culpa last year).

Actual solution: Went for my first check up in years. (Blood Pressure/Cholesterol are excellent)  On a diet, going to the gym, running again. Colonoscopy scheduled for the Spring. Now the trick is to trick to it.


As always, ideas, suggestions, and hints for improving are always welcome!

Category: Investing, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “2011 Investment Mea Culpas”

  1. doug says:

    Minor edits?
    “2010″ = ’2012′ and ‘trick’ = ‘stick’?

  2. [...] Barry's 2011 mea culpas.  (TBP) [...]

  3. AnotherDamnBrit says:

    Strongly suggest you give Pegby.com a go, to help with organisation, task management and related collaboration. It’s the first time I’ve ever I’ve found a lasting digital solution that works better than paper. Just a happy customer/user spreading the word, but they might well be interested in an investor, too (they’ve recently been deservingly flagged/blitzed by Lifehacker)…

    Your list matches me surprisingly closely (as entrepreneur, rather than financier), but you’ve got it down and owned up, while my list would add procrastination… very Zen!

    Long time lurker and fan

  4. Orange14 says:

    #2 – if you have not already done so, read Danny Kahneman’s book, “Thinking Fast and Slow.” Every chapter has something worthwhile to consider in terms of investing. Confirmation bias is terribly difficult to deal with.

    #3 – personally I think this is the big one and every investor should clearly state what their own principles are. If they plan on using someone to manage their money, there should be an alignment of principles and if you cannot understand the prospective manager’s principles don’t go there (a lot of Madoff clients would be sleeping better today had they done this). I’ll just throw out some things that I follow (for better or worse, mostly better, I manage my own money) and these apply to individual equities. I approach things from a modified Graham/Dodd value approach with the emphasis on ‘margin of safety.’ 1) do you understand the business and its competitors; 2) do you fully comprehend the financials of the company (including all the footnotes); 3) do you understand the impact of the macroeconomy on the business; 4) how long is your specific investment horizon (forever, while interesting is not too helpful since as Keynes so famously said, ‘we are all dead sooner or later’) and 5) when do you get out of the investment.

    These are just off the top of my head and I should emphasize as you and the readers of this blog know, this all requires hard work and discipline.

  5. moreland01 says:

    When I find a financial manager who won’t make more money off of my investments than I made in a given year, then I’ll jump back in. Put your money where your mouth is. If you do that, you will have my business, Barry!


    BR: Done. Send your PDFs of your portfolio statements to my office

  6. buzzer87 says:

    Good checklist.

    I started focusing on my health in 2011. Read a book called “The Evolution Diet” by Art de Vanny. The concepts are simple, no starving yourself and you feel great.

    I discovered Art De Vanny from reading “Fooled by Randomness,” by Nassim Taleb. Taleb is better know for his book “The Black Swan.” In Art de Vanny’s book Taleb writes a helpful afterword on the benefits of living a random lifestyle.

    Even if you do not do the diet the book is a great read.

  7. Pantmaker says:

    “3. Articulate policy and principles: I have a pretty firm set of beliefs when it comes to investing (seen in about 6,000 posts on the blog), but I have yet to put it down in a short format. This is a function of laziness and fear of ridicule.”

    Don’t go there Barry…bumper sticker brevity and top ten lists are the stuff of simpletons. It would be a public disservice to “cliff note” your intellectual creativity and investment ideas. It’s actually one of the reasons I think most folks here appreciate your work so much. It’s not something you can fold up and put it in your wallet.

  8. constantnormal says:

    Just one suggestion — and I offer this with the greatest humility possible — you seem to have an awful lot of irons in the fire, Barry. I suggest that semi-annually, at least semi-annually (preferably quarterly) you make some quiet time, sit down and tally up the list of things you are trying to accomplish, and cut the least important 10%. Or at a minimum, delegate them to somebody else.

    You’re only human, and there are only so many hours in a human life. You may be giving up more in the other 90% due to trying to make it work in that least-important 10% than the 10% will ever develop into …

  9. [...] 2011 Investment mea culpas.  (Big Picture) [...]

  10. constantnormal says:

    OK, I lied — so sue me — here’s another thing … in the area of diet & exercise –

    There’s an excellent app that tracks calories, diet and exercise (calories). It made it possible for me to drop another 50 pounds, after working hard at it for years and failing (after losing the initial 50 pounds via will power and sensible eating & (some) exercise). My doctor suggested it, after another patient of his dropped 65 pounds and raved about it.

    Look up MyFitnessPal in the App Store. Also available for Android. And it’s free.

    Tracking the essential data easily and fairly precisely, in real time with a minimum of fuss and bother, provides the feedback mechanism that makes the impossible possible.

  11. constantnormal says:

    OK, a third thing and I’ll shut up — I promise. This is more of a suggestion for your assert management business than you personally.

    What I’d like to see — in any such business, is a summary track record (preferably audited, but not really essential, as I do my own tracking) going back for the life of the fund. In a business like yours, where customers can (presumably) put some general guidance into how they want their money handled, I realize it’s going to vary according to the customer profile, so perhaps some categorization of the fund’s performance by segment (security-oriented retirement, growth-oriented youth, gonzo-crazy retirees, etc) would be nice, or just a range of annual customer assets performance metrics (e.g., “in 2011, our clients made between -10% and +11%, with the asset-weighted mean performance coming in at 8%”). A chart showing customer asset size distribution vs annual performance would be nirvana (but is likely more proprietary data than you would be comfortable sharing, for competitive reasons).

    The other thing I would like to see in everyasset management fund is a profile of the traders and managers involved, by age and sex — no names, just numbers and data. A bunch of twenty-something males running my money is not something I personally am delighted to see. I would find that to be a whole lot more useful that some puffed-up bio of the fund manager, who may or may not have much to do with the everyday operation of the fund.

    Sadly, I can find no instances of such data being offered up, anywhere in the industry.

  12. constantnormal says:

    #2 Confirmation bias … I thought that was the reason that you accepted comments in your blog … to combat such a thing.

  13. rhodium says:

    For dieting, I have found, as a quantitative person (and old, 60+ and not so active), that calorie counting works great, as in 20% body mass weight loss. Pick a number, 1400 or 1500 calories a day (modified for BMI, activity and rate of loss) and count everything. Making your daily number should feel pretty natural to you. The internet makes it easy to calculate intake, and if you really want to stick to it tweet your intake. Good luck.

  14. freethinker52 says:

    “(for the record, we outperformed our benchmark, and did so with considerably less risk).” i am curious. how do you compute this. at one time i was interested in giving your firm some money to run. i contacted and was told you dont have any “fund” that could be used to calculate performance numbers off of.
    i could get no performance numbers. i was basically told none were available. what gives?

  15. Patrick Neid says:

    I would add Jeffrey Saut’s weekly comments to your list. Everyone gets hot for a while and he has been on it since the lows in March 09.


    BR: Jeff is a friend — and I read him every week

  16. [...] pop – MarketWatch Refineries close – no relief in rising gas prices – LA Times 2011 Investment Mea Culpas – The Big Picture Investing for the cheap-money era – MSN Money Gold Is The Hottest [...]

  17. James Cameron says:

    Went for my first check up in years. (Blood Pressure/Cholesterol are excellent) On a diet, going to the gym, running again. Colonoscopy scheduled for the Spring. Now the trick is to trick to it.

    One of the most important things I do for myself is exercise regularly and eat a very balanced – and healthy – diet. I’ve been a serious runner for 40 years, and have always made this a priority. Your health is central to everything else in your life, but too often people discover that the hard way.

  18. [...] pop – MarketWatch Refineries close – no relief in rising gas prices – LA Times 2011 Investment Mea Culpas – The Big Picture Investing for the cheap-money era – MSN Money Gold Is The Hottest [...]

  19. [...] is set to pop – MarketWatch Refineries close – no relief in rising gas prices – LA Times 2011 Investment Mea Culpas – The Big Picture Investing for the cheap-money era – MSN Money Gold Is The Hottest Currency In [...]

  20. Doubtful says:

    Along the lines of some other commenters (e.g., freethinker52 moreland01),
    you should have a public track record. You can easily do that without
    giving away any trade secrets by, for example, having 3 public funds:
    (1) S&P 500, (2) short S&P 500, (3) cash, and posting when you shift
    money between them depending on your market predictions. I am always
    amazed that people actually give their money to invest to someone
    without a public record. I cannot imagine a good reason for not having one.

  21. Molesworth says:

    Mr Achuthan (and Ms Hubman) are not really opinionated, are they? They just read the numbers. I’ve heard Mr Achuthan say that he’s agnostic about the economy and that he’s just reporting what the numbers are saying.
    * * *
    I have the worlds best 2 week diet. Lose 8-10lbs and then eat sensibly afterward. I have to go back on it every 3-5 years.
    Don’t have a fax anymore though, so can’t send and don’t think you want me to post on your comments. I’ll see if I can find a link to one similar.
    * * *
    Posted next to my desk:

    Decide what you want to do.
    Then decide to do it.
    Then do it.
    ~ William Zinsser

  22. Sunny129 says:


    My 2Cents worth personal medical advice:

    Our aging is accelerated by ‘oxidation which is detrimental to the health of cells’. Calorie restriction is well known in prolonging longevity during late years. Calories promote oxidation of cells leading cell death.

    One of the well known but less appreciated drug is ASPIRIN ( Not the 80-160mg for those post coronary patients)
    but 2( two) adult dose aspirins (365mgX2) every other day or at least once in three days, ONLY IF you can tolerate it with no side effects or sensitive stomach.

    I am an MD and taking Aspirin (above dose) over a decade+ once I past the age 50y! For some this may appear ‘dangerous’ or controversial but it is working for me. Aspirin( Salicyelic acid) has two components – Coxa inhibitor #1 and Coxa inhibitor #2. The first one well known related thinning of blood ( prevents aggregation of platelets leading to thrombus and blockage!) The second one is less well known but significant. It reduces the effect of ‘chronic smoldering inflammation’ in our arterial tree through our body. My blood chemistry ( profile) has remained at healthy levels. Don’t forget to get C-Reactive Protein blood level!

    Besides known reducing coronary occlusion and strokes, Aspirin also ( strongly supporting but not definitive evidence) prevents GINGIVITIS, retards formation of gall stones, prevents cancer of COLON( and other organs-?Pancreas), reduces the chances of late onset Diabetes by promoting transfer of glucose across cell membrane and supposed to boost immune system!

    Several years ago Consumer’s Health letter had this information but I am unable to locate it. (Merck tried to isolate Cox Inhb#2 in ?Vivax which resulted some deaths and well known litigation). There is a lot more out there if one investigates, deligently. Evidence is not clear cut but strongly suggestive. This has gone under the radar b/c aspirin is available every where and NOT a prescription drug.

    Please do consult you personal physician before acting on my 2cents tip!

  23. Bob A says:

    colonoscopy .. woohoo :))

  24. Two things I did that helped me not lose money in 2011.

    1. Create a virtual play portfolio. I use traefields.com and kapitall.com – You are probably too busy for this so it might be more appropriate for people like me.

    2. Write for seeking alpha to validate, invalidate, challenge, discuss investing ideas. I am ranked 12th in ‘quick picks’ right now.

  25. Molesworth says:

    Couldn’t find it on the internets. Maybe I should market it and earn millions.

    Lose 10 to 15 pounds in two weeks.

    Daily Breakfast Grapefruit, 1 or 2 eggs, black coffee
    Snacks 2 x day Low sodium V-8 or tomato juice or no-fat plain yogurt with cucumbers or carrots.

    Monday Luncheon 1 or 2 Eggs, tomatoes, coffee
    Dinner 1 Egg, Salad, ½ avocado, 1 piece of dry toast or roll, grapefruit, coffee or tea

    Tuesday Luncheon 1 or 2 Eggs, grapefruit, coffee
    Dinner Small steak, tomatoes, celery, carrots, cucumber, olives, coffee or tea

    Wednesday Luncheon 1 or 2 Eggs, tomatoes, spinach, coffee
    Dinner 1 or 2 lamb chops (or 1/2 lb pork tenderloin), ½ avocado, celery, cucumber, tomatoes, coffee or tea

    Thursday Luncheon Salad, grapefruit, coffee
    Dinner Eggs, non-fat cottage cheese, spinach, dry toast or roll, coffee or tea

    Friday Luncheon 1 Egg, spinach, ½ avocado, coffee
    Dinner Grilled fish, salad, 1 piece of dry toast or roll, coffee or tea

    Saturday Luncheon Fruit, NOTHING ELSE
    Dinner Plenty of steak, celery, tomatoes, cucumbers, tea or coffee

    Sunday Luncheon 1 egg, tomatoes, ½-1 avocado, grapefruit, coffee
    Dinner Grilled chicken, tomatoes, cabbage, carrots, celery, vegetable soup, grapefruit, coffee or tea.

    Weight loss around 10 to as much as 20 pounds in two weeks.
    Do not follow this program for longer than two weeks.
    Consult a physician before starting this and any other diet.
    Write down your target goal and timeline in positive terms.

    Follow this program for two weeks. Eat nothing else.
    Eat what has been assigned rather than doing without.

    Use positive terms, i.e., “Weigh 125lb. and have a 28inch waist by Aug 18”. NOT: “Lose 20lbs by Aug 18.” That won’t work. Nobody wants to “lose”. If longer than 2 months, write down interim goals

    New Years Resolutions: It is recommended that you do not start in January. Your primordial body is “hibernating.” It’s very difficult to lose weight during the Winter. You’ll be happier with results if you wait until Spring.

    It is easier to begin the program on a Monday so the new regimen starts at the beginning of the “work week.” Plus, meals are a bit more substantial during the weekend.

    A fiber supplement is recommended.
    If you are over 50 years old, an enzyme supplement is recommended to help aid digestion.

    Naturally, a certain amount of common sense has to be used:
    o No butter on the vegetables
    o Grapefruit without sugar
    o Only the lean part of the meat
    o Salad without dressing.
    o Use spray olive oil
    o No sugar in your bread or rolls
    o Drink at least 48 oz of water each day-preferably with a slice of lemon or lime in it.
    o Check labels: Consume nothing containing high fructose syrup. It slows fat burning & causes weight gain.

    o Use lemon, lime, rosemary, pepper, onions, low sodium salsa, garlic, vinegar to add flavor.
    o Use capers and salt sparingly.

    o Think omelettes. Think hard-boiled eggs. Think raw vegetable crudités.

    o There is a reason for grapefruit over grapefruit juice (bulk and fiber).
    If you go with the juice, get 100% grapefruit juice rather than frozen or from concentrate.
    Salad dressing is not recommended. However, if you must:
    o Mix ½ non-fat yogurt with ½ salad dressing
    o Mix ½ vinegar with ½ salad dressing
    o Mix 1/3 non-fat yogurt/1/3 vinegar/1/3 salad dressing.
    o Puree no fat cottage cheese and add lemon or vinegar to taste.
    o Make very certain there is NO high fructose corn syrup in your dressing. Low fat salad dressings can be loaded with it. It’s better to use salad dressing that does not contain sugar.
    If you can’t stand life without butter, use sparingly or non-trans fatty margarine (Smart Choice, e.g)
    Butter & mayo substitutes: Yogurt cheese (drain non fat yogurt in cheesecloth for 24hrs) or avocados.
    If you cheat:
    o Acknowledge it to yourself,
    o Scold yourself gently
    o Encourage yourself to get back with the program.

    o Weight loss requires both diet and exercise. If you don’t exercise, you’ll lose weight initially but your body will believe it is starving, adjust its metabolism downward & you’ll stop losing.
    o Daily: At least 20 minutes of aerobic exercise.
    o Daily: Minimum 30-50 crunches, 50-100 side bends, 5-10 forward lunges, 5-20 push-ups.
    o Yoga or Tai Chi highly recommended.

    Weight Loss is not linear.
    Some days nothing will happen. Some days, you will gain.
    Stick with it. You will feel the results. You will see the results.

    Weight loss maybe 10 to 20 pounds in two weeks.
    Do not follow this program for longer than two weeks.
    Consult a physician before starting this and any other diet.

    To keep from regaining lost weight you need to eat less than your body burns to survive
    o Cut down on portions
    o Steer clear of high fat food, processed food and sugar
    o Never, never, never eat anything containing high fructose corn syrup.
    o Continue exercising.
    o Use an “Internal Cleansing” detoxification (available at health food stores) regimen 1-2 x a year.
    o Stop drinking alcohol one month a year. (At the end of the month, you’ll feel so good, you’ll want a drink. February is recommended–for obvious an obvious reason.)
    o Once you’ve achieved your target weight, write down a “maximum” weight you’ll accept to trigger you to start losing again.

  26. finn0123 says:

    If I may offer a suggestion regarding 2 (not necessarily a solution), I find that one way I counter my confirmation bias is to not only judge the views which I agree with, but also the methodology where available. I find a fair share of views of which I initially agreed with have underlying fundamentals/reasons/methods I do not. I also do the same in reverse and find that this has the same effect as well. This is still susceptible to confirmation bias about methods, but at least it edits some of the noise (at the risk of doubling down where I agree on both parts!).

    My other one is befriend someone who has such an opposite view it drives you nuts and co-commit to meeting up for coffee once a week. I have such a ‘friend’ and the outcome has been that he challenges my views in such a way that I have to make sure my methodology is sound and when I’m ‘right’ I get the bonus of letting him know (positive feedback loop).

    My two cents.

  27. Exreporter says:

    Everybody worries about that colonoscopy. It’s nothing. The doctors and nurses who do colonoscopies look at butts all day, everyday. You’re just another butt.

    I went in for my first colonoscopy in September. They gave me an anesthetic and a drug to keep me from remembering anything. The doctor said, “Roll over on your left side.” Next thing I knew, I was waking up in recovery. I remembered NOTHING. Believe me, that procedure is a breeze.

    I cannot say the same for the night before. You will be given something to clean you out. Before the night is over, you will be cleaned out. Do not go out to eat. Do not go to a movie. Don’t even go out on the patio. You want to stay close to a bathroom. Real close. You will be spending a lot of time on the toilet!

  28. [...] 2011 Investment mea culpas.  (Big Picture) [...]