Finance

Can Turtles Fly?

Let me present some of my impressions relating to the downside to be a value trader. Personally, I don’t consider myself a value trader but am intensely affected because of it; I consider myself a contrarian with a value tilt. Now, this is of a value investor varies greatly but one common feature I find in value investors is their avoidance of macroeconomics. This is actually the reason behind the major issue with value investing. Pure value traders do not pay much focus on macroeconomics because you can never forecast the future–which is just what the majority of macroeconomics handles. Who really understands if things are going to be much worse now than before?

We are just pretending to be soothsayers, are we not? The macro picture still gets into the investment decision of value investors but usually with a lesser emphasis. Warren Buffett, for example, doesn’t care what the Federal Reserve does or what the future expectation of GDP development in China is, but he reads a great deal of industry publications (supposedly). So, he actually gets a feel for the macro-picture from industry tendencies. The downside of ignoring the macro-picture (or at least not putting much weight involved with it) is that you will spend money on seemingly questionable assets than can inflate. Furthermore, value investors have a tendency to miss “macro-styles” which can yield hugely profitable investments.

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For instance, very few value traders have capitalized on the recent commodities boom. Yes, you had Warren Buffett invests in PetroChina and ConocoPhillips; yes, you had Jean-Marie Eveillard invests in gold; etc. But these investments are a small part of their portfolios. I personally pay attention to macro a bit quite. I likely miss out on a lot of opportunities this way, but I avoid a great deal of problems also. Before I get trashed, I will inform you that I’m just pointing out the downside of value investing so that investors are conscious of what can happen with value investing. This post does not deal with the upside. Needless to say, the benefit is far greater than the downside so value trading is attractive in the long-run.

One of the best ways to build a network is to build up a reputation for really taking care of people who work with you. Be large with sharing the upside overly; it will come back to you 10x. Also, understand how to evaluate what folks are great at, and put them in those roles. You want to have a reputation for pushing people hard enough that they accomplish more than they thought they could, but not so hard they burn out. Everyone is better at some things than others. Define yourself from your strengths, not your weaknesses.

Acknowledge your weaknesses, and work out how to work around them, but don’t let them stop you from doing what you would like to do. “I can’t do X because I’m bad at Y” is something I listen to from entrepreneurs amazingly often and always reflects a lack of creativity almost.

The easiest way to make up for your weaknesses is to hire complementary team members rather than just recruiting people who are proficient at the same things you are. A particularly valuable part of creating a network is to get good at discovering the undiscovered skill. Quickly spotting intelligence, drive, and creativeness gets much easier with practice. The easiest way to learn is just to meet a lot of people and keep track of who continues on to impress you and who doesn’t.