Posts filed under “Philosophy”

“I Am Looking to Outperform the Markets by 4-5% a Year”

Lately, the day job has been inspiring many of our Philosophy Phriday posts. (This coming Sunday’s WaPo column was also inspired by what we see int he office).

Today’s post is another such example. Perhaps its because we run a somewhat different business model than is typical in the finance industry in the US. Our clients come to us through word of mouth and referrals, as opposed to the traditional cold calling/sales nonsense (which I despise). We run a more European model, which is low key and quite civilized.

Anyway, the other day, we received this inquiry in the office:

“I am interested in some alpha investing without excessive risk, perhaps looking for 4-5% greater than the averages.” (emphasis added).

Understand, that not every inquiry is a good fit for us. And what we do is not a good fit for every potential client. If we don’t think what we do will make the client happy — even if its the smart thing, the right thing for them to do over the long haul — we simply don’t take them on. This inquiry likely fell into that category.

But rather than just blow someone off, I always feel obligated to at least make some attempt to explain why he is unlikely to achieve happiness & wealth in his chase of Alpha. Call it tough love or the straight dope, but I have to at least try to help the guy get off his expensive, illusory alpha chasing hamster wheel.

Thus, I responded as follows:


I wanted to follow up to the automated reply you received from me yesterday. You noted that you were looking for “perhaps looking for 4-5% greater than the averages.”

The best doctors I know never mince words, and I agree with that philosophy, so here goes: YOU ARE HURTING YOURSELF WITH THIS PURSUIT.

The data on this is overwhelming and incontrovertible. Nearly all investment managers underperform; of the ones that out-perform, few do it consistently year to year, and of those who do, once you take into account fees, they become average.

Earlier this Summer, I gave a presentation to a room full of public pension trustees at Harvard (about 1.7 trillion dollars worth, not counting Calpers). Its called “Romancing Alpha, Forsaking Beta” — you can see it here.

The takeaway is that the mad dash for out-performance almost always leads to UNDER-performance. The huge public pension funds and many of the large Foundations are slowly coming to realize the truth of this.

If you are looking for someone who is going to find you the magic hedge fund that turns dross into gold, we cannot help. What we can offer you is a way to figure out what your needs and goals are, along with the healthiest, lowest risk way to achieve those goals.

There are some people who have yet to pay their tuition to Wall Street University. They shall do that over the course of their investing lifetimes through high fees, unnecessary taxes, costs and expenses. And the vast majority of these folks will underperform the suitable benchmarks. Net net they better enjoy this pursuit, for it will be more expensive than any mid-life crisis expenditures they might incur.

Patients are advised to stop smoking, lose the weight, exercise, reduce stress, cut out sugar, etc. when their doctors observe conditions they KNOW will manifest as future health problems. To this doctor, I tried to identify the risks to his future financial health. Otherwise, he will eventually pay some hefty tuition bills if does not change his investing ways.

Investors, heal thyself.

Category: Apprenticed Investor, Hedge Funds, Investing, Philosophy, Psychology, Really, really bad calls

Umair Haque on the Global Economy

Umair Haque discusses the broken relationship between institutions and people, why the economy is stagnant, and how to fix it.

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Category: Philosophy, Video

How’s Your MetaCognition?

  “Knowing yourself is the beginning of all wisdom.” -Aristotle   Over the past few weeks, I have been waxing eloquent on the subject of self-awareness, knowledge, and recognizing one’s own lackings thereto. Last week, we discussed the Value of Not Knowing; that followed the prior week’s discussion of why I don’t bother guessing a…Read More

Category: Philosophy, Psychology

Is McKinsey to Blame for Skyrocketing CEO Pay?

In 2011, I posed the question “Is McKinsey & Co. the Root of All Evil ?” This was not a tongue-in-cheek query, but rather, a look at how so many recent disasters traced their origins back to McKinsey & Co. Which brings us to the latest issue negatively affecting the United States, skyrocketing CEO pay…Read More

Category: Crony Capitalists, Philosophy, Really, really bad calls, Wages & Income

On the Value of Not Knowing

Its Philosophy Phriday, and as such, I want to discuss my ignorance. Or rather, my justifiable pride in my willingness to say “I don’t know.” I use this phrase frequently, for there are a wealth of subjects I know very, very little about. Sometimes I am asked things I could not possibly know, particularly about…Read More

Category: Investing, Philosophy, Psychology

The Best (Non-Financial) Financial Books

From time to time people ask me to give them recommendations on good finance books. When I respond, I either get blank stares or laughs… What’s so funny about the Tao Te Ching, Thoreau’s Walden, or Daniel Gilbert’s Stumbling On Happiness? Were they expecting something like Dave Ramsey’s Financial Peace, Kiyosaki’s Poor Dad / Rich…Read More

Category: Books, Philosophy

“What’s Your NFP Number?” [Don't have one]

This morning, the single most asked question I hear is “So what’s Your NFP Number?” That’s one of the more interesting side issues about this Maine event/fishing trip/conference. Its overrun with economists and Fed folk, who are the fairly focused on short term data. Regular readers number I have little interest in making bad predictions…Read More

Category: Data Analysis, Employment, Philosophy

Third Dynasty, 2005 B.C. (before crisis)

Tom Keene says some astonishingly nice things about your humble blogger. Its based in part on our prior discussion of “our god-given right to be wrong in picking stocks,” and what that means for investor psychology as well as portfolio decisions:   click for full article   Much more of this and I will become…Read More

Category: Media, Philosophy

Independent Thought: Earning Your Free Will

Ahhh, sleeping in my own bed — such a delight. After a trip to Denver for an FA Mag conference and then onto to Vancouver for the Agora event, I am back home again. It is just for a week, and then I head off to my annual Maine fishing event. Travel is good for…Read More

Category: Philosophy, Psychology, Travel

90% of Everything is Crap

Source: Mental Floss     As someone who has spent his fair share of time debunking nonsense, I love the elegant way Theodore Sturgeon trashed this anti-SciFi trope in the March 1958 issue of Venture: “I repeat Sturgeon’s Revelation, which was wrung out of me after twenty years of wearying defense of science fiction against…Read More

Category: Philosophy, Quantitative, Rules