As I prepare to move from one demographic checkbox to another later this week, I’ve been spending a fair amount of time wandering down memory lane. I’ve re-watched the movies from my youth, including Sixteen Candles, Ferris Bueller’s Day Off, Caddyshack and Smokey & The Bandit. I’ve gotten in touch with my inner Carlton Banks during a stirring, post-wedding live band rendition of “Footloose.” And I’m pretty sure when Loggins sang “everybody cut, everybody cut, everybody cut Footloose!” he wasn’t talking to me.
I’ve also spent a lot of time thinking about all the things I know now and all the stuff I have yet to learn.
For my 45th year, I plan to keep learning as much as possible. I’m going to surf camp for a week. I will finally learn how to do a proper figure skating sit spin. I vow to discover how to drive with more limited use of my middle finger. And of course, I hope to continue to figure out how to be a better investor, researcher and snarky advocate for the alternative investment industry.
When reflecting on what I do know I know, however, I did come up with some truths that constantly guide my investment decisions and unsolicited advice. They’ve become the North Star of my investment world, so to speak. And as luck would have it, there’s exactly one for each decade, with one to grow on. How fitting!
One: Continuous outperformance is a myth. Every manager screws up, gets caught with their portfolio pants down, or otherwise loses money from time to time. Finding the managers that minimize those downturns, can admit to and learn from mistakes, doesn’t keep making the same mistakes and, perhaps most importantly, live to invest another day is the real trick. Frankly, the only managers I’ve ever seen that never posted losses were frauds or, um, otherwise a bit creative in how they marked their portfolios.
Two: Between investing early and late, I’ll take early any day. In 2006, I started researching the outperformance of emerging managers. In 2010, I started researching women and minority run funds. Thus far, investors have largely ignored those groups in favor of the same old, same old. As an investor friend of mine once quipped: “Investing in emerging managers is like sex in high school, even though everyone talks about it, no one actually does it.” Despite the lack of investors putting their money where my mouth is, I remain convinced there’s significant alpha to be had with these groups. The lesson? Just because the packaging doesn’t look familiar doesn’t mean there’s not goodies inside. The same thing goes for new trends for venture capitalists, out-of-favor investments, sectors or strategies. Early bird, meet worm.
Three: Any way you can invest involves risk. Whether you keep money in a checking account, invest in hedge funds, index funds, actively, passively, in real assets, conservatively or aggressively, there is a risk you will lose money or not make enough money, or that you will not have access to your money or otherwise lose out. My Grannie kept money stuffed in the pockets of the clothes in her closet because she thought that was risk free, but she missed out on any potential profits and, obviously, her returns lagged inflation. Not to mention: what if the house burned down? There are no risk-free investments. Period.
Four: Investment professionals (and anyone else) that truly want to rip you off will find a way to do so. Having said that, the best way for them to accomplish that is to build blind trust. After all, the “con” in con artist is short for confidence. Most of the big scams in investing couldn’t happen without trust, and most of the time those closest to the bad actor are the first to get victimized. Think Bernie Madoff who bilked members of his religious community and other friends and family. Obviously, you need to trust your investment professionals by all means or you’ll never sleep at night, but never forget to at least periodically verify.
And one to grow on: Look out for zebras, but don’t forget about the horses. A recent venture capital fraud case involved not a sophisticated cyber fraud or complex skimming techniques. The perpetrator merely added a “1” to a check, changing $8 million to $18 million. Occam wasn’t wrong: It’s not always the most sophisticated schemes or black swans that cause losses. Sometimes the ordinary can be just as dangerous.
What’s the biggest lesson you’ve learned in your investing career? Feel free to sound off in the comments below with your best advice. And please follow me on Twitter (@MJ_Meredith_J) if you prefer your snark in 140 characters or less.