Are you looking to elevate your investment game from competent to excellent? Many possess the intelligence and work ethic to enter fund management, but true greatness requires something more. This article explores that critical element, using a thought-provoking analogy to uncover the secret.
The key lies in understanding how top investors differentiate themselves. It’s not just about following the crowd or mimicking market trends. It’s about having the courage to stick to a well-defined strategy, even when it’s unpopular. Discover the power of ‘bellitious’ thinking and how it can lead to superior investment outcomes.
We’ll delve into the importance of specialization, the challenges of resisting peer pressure, and the necessity of avoiding arrogance. By the end, you’ll have a clearer understanding of what it takes to be an excellent investor and how to apply these principles to your own investment journey.
The Allotment Analogy: Conformity vs. Independence
Imagine a community garden, an allotment, where everyone is diligently growing vegetables. Most gardeners scowl as they work, doing what’s expected. Then there’s one person relaxing in a deck chair. This image highlights a fundamental truth about investing: to outperform the market, you can’t simply do what everyone else is doing.
The market exerts a strong gravitational pull, pressuring fund managers to conform. They are constantly compared to the market, and underperformance can lead to job loss. The pressure to ‘copy’ the market is intense, leading many to mimic it to some degree.
But great investors resist this pressure. They understand that true success comes from specializing and focusing on a specific strategy, even if it means going against the grain. This requires a willingness to be different, to stand out from the crowd.
Like the deck-chair dude, excellent investors know what they want and how to achieve it, regardless of what others think. They are comfortable being different and are not afraid to challenge conventional wisdom.
The Gravitational Pull of the Market
The market’s influence on fund managers is immense. The constant comparison to market performance creates a toxic mix of peer pressure and personal financial risk. The fear of underperforming leads many to mimic the market, diluting their unique strategies.
This conformity is often driven by the fear of being wrong. Fund managers worry that deviating from the market consensus will make them look foolish. However, this fear can stifle innovation and prevent them from achieving superior returns.
To truly excel, investors must resist this gravitational pull. They need to be willing to take calculated risks and pursue strategies that may be unpopular in the short term. This requires a strong sense of conviction and the ability to withstand criticism.
The best investors understand that short-term underperformance is inevitable. They focus on the long term, knowing that their unique strategies will eventually pay off.
The Importance of Specialization
All great investors are specialists, not generalists. They focus on doing one thing, and doing it exceptionally well. Warren Buffett, for example, finds great companies and holds them for the long term. He ignores what everyone else is doing and focuses on his specific area of expertise.
However, specialization also comes with challenges. No matter how good your strategy is, it won’t work every year. There will be times when the market outperforms your specific approach.
Consider 2020, the pandemic year. If your strategy was focused on small turnaround stories, you likely underperformed significantly. Big, obvious companies like Amazon, Google, and Facebook soared, while recovery stocks struggled.
This experience highlights the importance of sticking to your strategy, even when it’s unpopular. It’s easy to be swayed by short-term market trends, but the best investors remain disciplined and focused on their long-term goals.
The Challenge of Tough Years
During tough years, the temptation to abandon your strategy is immense. You might be tempted to buy the big, obvious companies or even quit your job. The constant reminder that the world thinks you’re a clown can be unbearable.
However, giving up on your strategy is often the worst thing you can do. The moment you abandon your approach is often the moment it rebounds. The stocks you just capitulated into may crash, while your original strategy begins to perform.
This is why it’s crucial to pick managers who stick to their strategy, even during difficult times. Switching strategies after a couple of years of underperformance can lead to disastrous results.
The best investors understand that patience is key. They are willing to ride out the tough times, knowing that their long-term strategy will eventually prevail.
Introducing ‘Bellitious’: The Missing Trait
There isn’t a single word to describe the super-trait that separates excellent investors from competent ones. Words like ‘disagreeable’ and ‘contrarian’ come close, but they don’t fully capture the essence of this quality.
‘Disagreeable’ is too negative, implying unpleasantness and bad temper. ‘Contrarian’ suggests someone who always does the opposite of everyone else, which isn’t the point. The key is to be prepared to act differently when necessary, but also be content to run with the crowd when it’s the right thing to do.
To capture this trait, the author introduces a new word: ‘Bellitious’. A mash-up of ‘belligerent’ and ‘conscientious’, it describes someone who can be belligerent when doing what their conscience tells them is right.
Like Rosa Parks, who defied racist rules, ‘bellitious’ investors are willing to stand up for what they believe in, even when it’s unpopular. This trait is essential for resisting peer pressure and sticking to a well-defined strategy.
Avoiding the Wrong Stuff: Courage vs. Arrogance
It’s important to distinguish between being ‘bellitious’ and simply being dogmatic, contrarian, or disagreeable. In its worst forms, this can manifest as narcissism or sociopathy, which are more common in the fund manager world than they should be.
A good manager must be willing to resist obstacles, such as peer pressure or ill-conceived rules, but only when it pertains to their specific strategy. Beyond that, they should be respectful of others’ opinions, expertise, and feelings.
Take the example of ex-BlackRock fund manager Jonathan Paul Burrows, who needlessly dodged rail fares for five years. His actions were not only illegal but also demonstrated a lack of empathy and social conscience.
The best investors are courageous but not arrogant. They are willing to stand up for what they believe in, but they also recognize the importance of respecting others.
Conclusion: Finding Courageous Fund Managers, Avoiding the Arseholes
In conclusion, the one thing that separates excellent investors from competent ones is the willingness to be ‘bellitious’. This means being prepared to resist peer pressure, stick to a well-defined strategy, and stand up for what you believe in, even when it’s unpopular.
However, it’s also crucial to avoid arrogance and sociopathy. The best investors are courageous but also empathetic and respectful of others. They understand that success comes from a combination of conviction and collaboration.
When selecting fund managers, look for those who are willing to be different but also possess a strong sense of moral responsibility. Avoid those who are simply contrarian or disagreeable, as they are likely to make poor investment decisions.
By focusing on finding courageous fund managers and avoiding the arseholes, you can significantly improve your investment outcomes and achieve long-term success.
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