A question I regularly get from clients, prospects, family and friends is: “if you’re so good at what you do, why don’t you work in a big city like New York, Boston, Chicago or San Francisco like all other investment managers worth their salt?”
It’s a great question, and highlights what most people think: a) people who are good at what they do need to go to the biggest stage to do it, b) those who don’t go to that stage probably aren’t as good as they say.
Fair point. No truly great baseball player plays pick-up games on weekends. No virtuoso pianist only plays in her basement.
Investing, however, is different. With investing, all you have to do to compete against the best is buy or sell securities directly. Each time you buy, you may be buying from the best; when you sell, you may be selling to the best. You never know who is on other side of your trade, but the best are all participating in the same markets.
So, it’s not necessary to go do New York, London or Hong Kong to compete with the best. All you have to do is decide to buy securities directly. I do.
The reason why I’m not in a big city can be summed up in one word: independence.
To be a great baseball player, you have to compete against the best. To become a virtuoso pianist, you have to play against the best. Direct competition makes each individual better.
Investing, however, requires independence. Groupthink is the source of poor performance. So are marketing departments.
If you’re pressured to sell products because you work on commission, you’re not independent and unlikely to beat the market. If you’re boss is pressuring you to post good quarterly results to increase assets under management, you’ll lack the independence required to out-perform.
If you’re surrounded by people who represent the market, it’s very hard to resist being affected by their thinking. If you meet and talk daily with people who disagree with you and think you should follow the herd, you’re almost certain to be worn down and comply.
Or, as Benjamin Graham, Warren Buffett’s mentor, put it in the Intelligent Investor, “To enjoy a reasonable chance of continued better than average results, the investor must follow policies which are (1) inherently sound and promising, and (2) are not popular in Wall Street.”
Sound and promising means long term oriented. Marketing departments hate that because short term results are what sell. Not popular on Wall Street means contrarian. But, that’s difficult when you’re amidst the Wall Street herd day in and day out.
I believe I have and will beat the market over the long term because I’ve kept my independence. Being in Colorado Springs and without a marketing department breathing down my neck is an asset, not a liability.
Keep in mind that Warren Buffett spent his first 10 years operating out of the sun room in his Omaha home. He, too, saw the benefit of independence. Perhaps he was on to something.
Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.