I was approached by a younger friend for advice. This is my response to his questions below:
Thank you for agreeing to do this for me. I would love to have an actual conversation with you but unfortunately, I think that between all of the classes, exams, and group project meetings I have this week it would prove to be too much of a hassle for both of us to try to set up a time.This AI-Powered Emerging Hedge Fund Manager Is Blazing A New Path
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1. What professional and soft skills do you need to be successful in this career and why?
2. What advice would you give to someone considering working in this field?
3. What are some values/ethics that have been important to you throughout your career?
4. I understand that you currently run a solo operation, but are there any leadership skills you have needed previously in your career? Any examples?
5. What made you decide to make the switch to running your own business?
What professional and soft skills do you need to be successful in this career and why?
I’ve written at least two articles on this:
Let me answer the question more directly. You need to understand the basics of how businesses operate. How do they make money? How do they control risk?
Now, the academics will show you their models, and you should know those models. What is more important is understanding the weaknesses of those models because they may weakly explain how stocks in aggregate are priced, but they are little good at understanding how corporations operate. The real world is not as ideal as the academic economists posit.
It is useful to read broadly. It is useful to dig into a variety of financial reports from smaller firms. Why smaller firms? They are simpler to understand, and there is more variation in how they do. Learn to read through the main financial statements well. Understand how the income statement, balance sheet, and cash flow statement interact. Look at the footnotes and try to understand what they mean. Pick an industry and compare all of the companies. I did that with trucking in 1994 and learned a boatload. This aids in picking up practical accounting knowledge, which is more powerful when you can compare across industries.
As for soft skills, the ability to deal with people on a firm and fair basis is huge. Keeping your word is big as well. When I was a bond trader, I ate losses when I made promises on trades that went wrong. In the present era, I have compensated clients for losses from mistaken trades.
Here’s another “soft” skill worth considering. Many employers are aghast at the lousy writing skills of young people coming out of college, and rightly so. Make sure that your ability to communicate in a written form is at a strong level.
Oral communication is also important. If you have difficulty speaking to groups, you might try something like Toastmasters.
Many of these things come only with practice on the job, so don’t think that you have to have everything together in order to do well — the important thing is to improve over time. Young people are not expected to be as polished as their older colleagues.
What advice would you give to someone considering working in this field?
It’s a little crowded in finance. That is partially because it attracts a lot of people who think it will be easy money. If you are really good, the crowding shouldn’t be much of a hurdle. But if you don’t think that you are in the top quartile, there are some alternatives to help you grow and develop.
- Consider developing your skills at a small bank or insurer. You will be forced to be a generalist, which sets you up well for future jobs. It also forces you to confront how difficult the economics of smaller firms are, and how costly/difficult it is to change strategy. For a clever person, it offers a lot of running room if you work for a firm that is more entrepreneurial
- Or, consider working in the finance area of an industrial firm. Finance is not only about selling financial products — it is about the buyers as well.
- Work for a government or quasi-governmental entity in their finance area. If you can show some competence there, it would be notable. The inefficiencies might give you good ideas for what could be a good business.
What are some values/ethics that have been important to you throughout your career?
Here are some:
- Be honest
- Follow laws and regulations
- Work hard for your employer
- Keep building your skills; at 57, I am still building my skills.
- Don’t let work rob you of other facets of life — family, friends, etc. Many become well-paid slaves of their organization, but never get to benefit personally outside of work.
- Avoid being envious; just focus on promoting the good of the entity that you work for.
- Try to analyze the culture of a firm before you join it. Culture is the most important aspect that will affect how happy you are working there.
I understand that you currently run a solo operation, but are there any leadership skills you have needed previously in your career? Any examples?
This is a cute story: Learning Leadership. I have also written three series of articles on how I grew in the firms that I worked for:
- The Education of an Investment Risk Manager
- The Education of a Mortgage Bond Manager
- The Education of a Corporate Bond Manager
There’s a lot in these articles. They are some of my best stories, and they help to illustrate corporate life. Here’s one more: My 9/11 Experience. What do you do under pressure? What I did on 9/11 was a good example of that.
I know I have a lot more articles on the topic on this, but those are the easiest to find.
What made you decide to make the switch to running your own business?
I did very well in my own investing from 2000-2010, and wanted to try out my investing theories as a business. That said, from 2011-2017, it worked out less well than I would have liked as value investing underperformed the market as a whole.
That said, I proceed from principle, and continue to follow my investment discipline. It follows from good business management principles, and so I continue, waiting for the turn in the market cycle, and improving my ability to analyze corporations.
Nonetheless, my business does well, just not as well as I would like.
I hope you do well in your career. Let me know how you do as you progress, and feel free to ask more questions.
Article by David Merkel, The Aleph Blog