SmallCapPM1
New member
- Feb
- 10
- 1
Investment Banking
Many of you are hoping and planning for a long and successful career in finance. This is definitely possible, irrespective of the length and severity of any bear markets en route. There are a number of career strategies to be aware of which is going to massively increase your chances of long term fund management success. I have developed this list of strategies largely by watching colleagues fall by the wayside for ignoring them:
Ethics and Compliance
This is probably the biggest one. You need to adopt the highest possible ethical standards from day one. The CFA Code of Ethics is a good place to start, as is your employer’s own code of conduct. Since the Global Financial Crisis, one of the biggest areas of employment growth within the fund management industry has been within Compliance. Compliance professionals have more power than ever before and are increasingly adopting a “police-like” role in the way they watch portfolio manager behaviour. You need to befriend your compliance department and really listen to what they have to say. Working closely with Compliance to ensure everything is above board will reap significant career benefits. The vast majority of management teams in the industry will go to extreme lengths to ensure the risk of unethical behavioural is minimal given the extent of the reputational damage unethical behaviour like insider trading can cause. I would also highlight the importance of taking internal guidelines very seriously. I saw one of my colleagues lose his job a couple of years ago for sending some financial models he had been working on for his employer to his personal email address. Most employers will fire you on the spot for doing this. Be careful.
Alcohol and drugs at work
This is another important one which is ignored far more often than you may think. As a starting point, you need to make sure you are sober and drug-free at all times when you are in the office. This may seem like a startling statement to the dwindling number of old school city boys who still partake in these activities on a regular basis. However, I have seen many people lose their jobs for this reason alone. Don’t give in to peer pressure to break this rule. Being sober and drug-free at work is essential in a long term career.
Treat people the way you want to be treated
This is another strategy I have seen ignored surprisingly regularly to colleagues’ detriment. Fund management is an industry which often attracts alpha males who are extremely confident and arrogant. It can be a very competitive and wired working environment as a result. However, I would caution against allowing your confidence to grow unchecked. People who go down this path tend to treat their colleagues disrespectfully, and when the going gets tough their colleagues never back them. This is career suicide. I saw one incident where a portfolio manager was so rude to a trader that the trader complained very seriously to senior management about the outrageous behaviour. The portfolio manager in question was “let go” shortly afterwards despite pretty good performance. Be nice to your colleagues.
Stay healthy
Fund management is a demanding career choice at times. There is a highly developed and accepted culture of regularly going to the pub after work, particularly during periods of under-performance. Be careful with this. I have seen a number of colleagues who ended up becoming alcoholics as a result, and all of them have lost their their careers. It is important to go to the pub with your team mates on a regular basis as the pub is where a lot of team bonding is done. However, I would recommend limiting yourself to once every couple of weeks, and when you do go along try to stop at a few drinks. This strategy is easier said than done but will make a significant difference to your career longevity. I would also suggest that regular exercise is absolutely essential as a means of staying healthy and relaxed. I found that going to the gym at lunchtimes was a wonderful way of staying relaxed which in turn helped me make rational investment decisions.
Under-perform well
All portfolio managers will under-perform the market at different times in their career. It is simply impossible to out-perform in every time period. In my experience, you really see your colleagues when they are under-performing. A surprising number of portfolio managers become very stressed when they under-perform and then make poor, reactive stock decisions as a result, which ends up leading to longer term under-performance, and a negative cycle of decision-making. It is a bit like a car losing control. The best thing you can do is relax and go with it until you can take safe proactive steps to regain control. If you start reacting aggressively, you are almost certain to make things worse.
Admit when you are wrong
Self-awareness is key to long term investment success, and the really valuable step as a fund manager is the ability to admit when you have made a mistake so you can take corrective action. The investment strategy of running your winners and cutting your losers is surprisingly uncommon. Many portfolio managers can’t admit they have made a mistake and thus find it a lot easier psychologically to double up in their losers and take profit in their winners. If you start thinking like this, stop and reconsider. The best professional investors in the world know when to cut their losers, and generally believe this is a more important contributor to performance than running their winners.
Avoid market calls
I have worked with many colleagues who had a strong view on the market’s direction and constructed their portfolios to out-perform with this market view in mind. This is a very dangerous strategy which more often than not leads to severe under-performance. Predicting short and long term market direction is very hard to do. It requires a deep understanding of what everyone else in the market is thinking since markets usually do the opposite of the consensual view. I believe the key to developing a successful long term track record as a portfolio manager is to focus only on the companies. This approach is called “bottom-up” analysis, and in my experience this is the approach adopted by all of the great investors in the market. The key is to buy stocks at a significant discount to their intrinsic value, and to let the market move them towards fair value over time.
By following these strategies your chances of long term career success in this industry will be significantly increased. And I daresay you will have a far more fun fund management career as well, since you are likely to be happy, healthy and successful. I have noticed that colleagues who have adopted these approaches are also far more likely to be happy in their personal lives; they tend to have stable relationships as well as a positive outlook on life. It is all about balance.
Ethics and Compliance
This is probably the biggest one. You need to adopt the highest possible ethical standards from day one. The CFA Code of Ethics is a good place to start, as is your employer’s own code of conduct. Since the Global Financial Crisis, one of the biggest areas of employment growth within the fund management industry has been within Compliance. Compliance professionals have more power than ever before and are increasingly adopting a “police-like” role in the way they watch portfolio manager behaviour. You need to befriend your compliance department and really listen to what they have to say. Working closely with Compliance to ensure everything is above board will reap significant career benefits. The vast majority of management teams in the industry will go to extreme lengths to ensure the risk of unethical behavioural is minimal given the extent of the reputational damage unethical behaviour like insider trading can cause. I would also highlight the importance of taking internal guidelines very seriously. I saw one of my colleagues lose his job a couple of years ago for sending some financial models he had been working on for his employer to his personal email address. Most employers will fire you on the spot for doing this. Be careful.
Alcohol and drugs at work
This is another important one which is ignored far more often than you may think. As a starting point, you need to make sure you are sober and drug-free at all times when you are in the office. This may seem like a startling statement to the dwindling number of old school city boys who still partake in these activities on a regular basis. However, I have seen many people lose their jobs for this reason alone. Don’t give in to peer pressure to break this rule. Being sober and drug-free at work is essential in a long term career.
Treat people the way you want to be treated
This is another strategy I have seen ignored surprisingly regularly to colleagues’ detriment. Fund management is an industry which often attracts alpha males who are extremely confident and arrogant. It can be a very competitive and wired working environment as a result. However, I would caution against allowing your confidence to grow unchecked. People who go down this path tend to treat their colleagues disrespectfully, and when the going gets tough their colleagues never back them. This is career suicide. I saw one incident where a portfolio manager was so rude to a trader that the trader complained very seriously to senior management about the outrageous behaviour. The portfolio manager in question was “let go” shortly afterwards despite pretty good performance. Be nice to your colleagues.
Stay healthy
Fund management is a demanding career choice at times. There is a highly developed and accepted culture of regularly going to the pub after work, particularly during periods of under-performance. Be careful with this. I have seen a number of colleagues who ended up becoming alcoholics as a result, and all of them have lost their their careers. It is important to go to the pub with your team mates on a regular basis as the pub is where a lot of team bonding is done. However, I would recommend limiting yourself to once every couple of weeks, and when you do go along try to stop at a few drinks. This strategy is easier said than done but will make a significant difference to your career longevity. I would also suggest that regular exercise is absolutely essential as a means of staying healthy and relaxed. I found that going to the gym at lunchtimes was a wonderful way of staying relaxed which in turn helped me make rational investment decisions.
Under-perform well
All portfolio managers will under-perform the market at different times in their career. It is simply impossible to out-perform in every time period. In my experience, you really see your colleagues when they are under-performing. A surprising number of portfolio managers become very stressed when they under-perform and then make poor, reactive stock decisions as a result, which ends up leading to longer term under-performance, and a negative cycle of decision-making. It is a bit like a car losing control. The best thing you can do is relax and go with it until you can take safe proactive steps to regain control. If you start reacting aggressively, you are almost certain to make things worse.
Admit when you are wrong
Self-awareness is key to long term investment success, and the really valuable step as a fund manager is the ability to admit when you have made a mistake so you can take corrective action. The investment strategy of running your winners and cutting your losers is surprisingly uncommon. Many portfolio managers can’t admit they have made a mistake and thus find it a lot easier psychologically to double up in their losers and take profit in their winners. If you start thinking like this, stop and reconsider. The best professional investors in the world know when to cut their losers, and generally believe this is a more important contributor to performance than running their winners.
Avoid market calls
I have worked with many colleagues who had a strong view on the market’s direction and constructed their portfolios to out-perform with this market view in mind. This is a very dangerous strategy which more often than not leads to severe under-performance. Predicting short and long term market direction is very hard to do. It requires a deep understanding of what everyone else in the market is thinking since markets usually do the opposite of the consensual view. I believe the key to developing a successful long term track record as a portfolio manager is to focus only on the companies. This approach is called “bottom-up” analysis, and in my experience this is the approach adopted by all of the great investors in the market. The key is to buy stocks at a significant discount to their intrinsic value, and to let the market move them towards fair value over time.
By following these strategies your chances of long term career success in this industry will be significantly increased. And I daresay you will have a far more fun fund management career as well, since you are likely to be happy, healthy and successful. I have noticed that colleagues who have adopted these approaches are also far more likely to be happy in their personal lives; they tend to have stable relationships as well as a positive outlook on life. It is all about balance.