Emerging Manager Addendum & Stuff I Loved
Graham Duncan, Robert Vinall, Paul Enright, Yen Liow, Richard Feynman, Adam Robinson, Sadhguru, Mark Leonard
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Emerging Manager Addendum
I was amazed by the response to last week’s piece. It seems to have struck a chord with many of you - whether you’re in the trenches building a business or working for ‘the Man’ (still unfortunately mostly men) and dream of having your own shop one day. With more than 16,000 views it was my most popular piece yet and I want to thank all of you who shared it or reached out to me!
I am mulling over the idea of interviewing a small number of managers who bootstrapped their way to scale. Who took the path less travelled, started without institutional backing, and grew up sustainable business. I’m especially interested in the early choices they made: how their businesses reflected their unique style. I believe there are a lot of lessons to be learned and shared with the community. As you may remember, I feel inspired by anyone facing dragons on my own hero’s journey.
In the meantime, I wanted to share some writing I loved on the topic:
1) Are you ready to fully own the ambiguity of a new initiative?
2) Is your spouse fully on board?
3) How will you accelerate the process of building trust with new partners?
4) How will you protect the climate within your skull?
5) How are you going to source enough good ideas?
6) What are you compulsive about? Is it possible to put that at the center of the platform’s activity?
7) Are you really focusing on what you’re going to value over the long term?
One hang-up many analytical analysts launching a fund have is that they feel sales-y and do not like promoting themselves. Try thinking about marketing as telling people an interesting story about the way you see reality, which could be helpful to your audience whether or not they invest.
If you do a listening tour with older established portfolio managers and ask for advice, one theme will be that they didn’t realize how much time wearing the “CEO” hat takes up (versus the “CIO” hat). The process of building trust with a bunch of new agents is inefficient and time-consuming, and there is a real risk it will take you away from the investing.
Duncan identifies so many lessons and potential traps. Just go ahead and read the whole thing (his other writings, too).
“It is not a roadmap to riches for the hedge fund impresario with dollar signs in his eyes. It is though an almost guaranteed route to independence for the talented fund manager. That is in any case the only type who should be entering this industry.”
1. Get the initial structure right.
2. Do not follow the siren call of promoters
3. Keep costs ultra low.
4. Do not bother marketing
5. Communicate in an open and transparent fashion.
6. Get your target investors to self select.
7. Say no to the wrong type of investor.
8. Seek responsibility.
9. Dig a moat around your business.
10. Seek great partners.
Vinall was looking for freedom from institutional constraints, great partners, and the opportunity to practice his own craft. He accepted the downside of the “solo practitioner” path: starting with low AUM meant a focus on costs and, without a team, on protecting his time. I would recommend his letters to anyone in the business.
Lastly, there is Paul Enright's excellent thread which hits on an important point that I didn’t mention. Going out on your own requires you to take on new roles. After the transition from analyst to PM you’re also becoming a business owner. You have to hire and manage people, coordinate documents with lawyers, make purchasing decisions, pitch yourself and your product. As Duncan mentioned, a lot of time is spent on dealing with people and systems and building trust - not investing.
“In practice, there are four buckets of skill you must master if you want to manage a team or a fund. You must be a great stock picker, portfolio manager, manager of internal relationships, and a cultivator of external ones.”
You have five hats to wear flexing four skills - analyst, PM, boss, partner, client. Boss - Have you ever hired someone? Can you train? Mentor? What can you afford? How many relationships can you manage? How and how quickly do you address hiring mistakes?
Partner - Can you persuade? Tell a story? Paint a picture? Be a poet? Can you be trusted? How do you close? How do you maintain relationships? Does the strategy scale in a way that aligns with the potential partner? Does your view align with what you are actually doing?
Growing into new roles can be stressful, especially when the margin for error appears slim. We have to wear new hats. Some may not fit well. It’s a steep learning curve to tackle on your own.
I have a tendency to keep things wrapped up in my mind. To clear my mind RAM I journal. I write tons of notes, “thinking out loud, on paper.” There are stacks of scribbles all around me in this room. Every once in a while I manage to throw most of them out.
Still, the best way to clear my mind is often a good conversation.
Sometimes I find myself deep in the jungle, without a path forward, hacking away at the undergrowth. I’ve lost track of time. The map is useless. I can’t see the sky or any landmarks. It’s unclear if I’m moving at all. Am I exhausting myself going in circles? Am I repeating patterns of behavior that have tripped me up all my life? Am I about to step on a snake?
What’s hard for me to see can be obvious to the people around me. Our friends and family can tell when we’re spinning our wheels. When we’re pushing just because we can’t stand the feeling of pausing, even for a moment. They can listen. They can give advice when they see us fall back into old patterns or struggle with the human condition.
But they can’t always be helpful. If what you’re trying to achieve is specialized, complex, technical - like setting up a fund, starting a company, making a movie, writing a book - you also need peers who have been there before. It’s like they’re controlling a drone, watching our path from above. They often have a good sense of which river is safe to cross and which might drown us. Which local tribe to contact and which to avoid. They can’t clear the path for us. But they see when we’re really off track.
I’m not naturally talented at cultivating those relationships. For me, Twitter has been great at finding people at the intersection of markets and creativity. It’s the venue where I started publishing and found a global audience. Something else might work for you. But I urge you to connect with a group of peers who can support you emotionally and mentally. Especially if you attempt something like starting your own business. And even if you don’t. It’s more fun to figure out the path together.
Stuff I loved this past week
I don’t think covers of financial media are particularly helpful (Barron’s can be a helpful contra..). But I like to pay attention when the excitement of financial markets seeps into the mainstream:
Yen Liow with Ted Seides was excellent for anyone interested in stocks and hedge funds. Liow offers a deep dive on his investment style, matching a strategy that works with his personal temperament, and topics such as learning, game selection, and edge. I tweeted slides from a recent talk of his which hit on similar points with an emphasis on game selection.
“Barriers to entry in this business are exceedingly low. Barriers to excellence are incredibly high.”
Also recommend Adam Robinson with Bill Brewster (some notes). Adam is very thoughtful and I’d recommend his conversations with Tim Ferriss/Josh Waitzkin and Shane Parrish as well. I like his framework on how to avoid the "stupid zone" of bad decisions and how he contrasts different groups of traders/market participants.
“One of the most important lessons in life, certainly in investing, is to master the ability to remain calm.”
I also enjoyed Brian Koppelman’s conversation with Sadhguru.
“Only when fear of suffering subsides will you walk with full stride in your life.”
"Doesn't matter what it is. Human longing for deepening their experience is such that even if they have to poke themselves with a pin, they will do that. They want something profound to happen to them. Otherwise who would go through all this nonsense about life? The reason why they go through this is: seeking profoundness of experience. When it comes to experiencing life, you want the most profound experience. It's all you have. You want something to happen to you. If nothing happens to you, that is a most tragic life."
Richard Feynman at Cornell in 1964: on how to find a new law: first guess. Then compute the consequences of the guess and see what it would imply. Compare the results to observation. And if you’re wrong:
“It doesn’t make a difference how beautiful your guess is, it doesn’t make a difference how smart you are, who made the guess, or their name is: if it disagrees with experiment, it’s wrong.”
The same applies to investing and life. There are no brownie points for complexity. And the beauty of markets and business is that you don’t need the right name or degree to succeed.
For the hardcore history nerds among you: old episodes of Wall Street Week are available online (with a US IP address). Some of them are also available on YouTube. This is if you want to see a young Peter Lynch or an elderly John Templeton. I was struck by how little time there was for each guest in the old television format. Imagine instead having hour-long podcasts with all of the guests dating back decades.
What is your most precious resource? Your attention. What you do with your time. Now think about how the world is designed to grab it, hold on to it, harvest it. How you’re the product on the internet (engage!) and in markets (trade!).
“What you experience in life--whether pleasant or painful--is a function of where your ATTENTION goes, where it gets placed. However, you don't necessarily get to decide that. Often, your circumstances, the situation you're in, will decide it.
Mark Leonard, CEO of Constellation, is building a unique company. I remember when this podcast interview first surfaced and was quickly removed. Now it’s back up on YouTube. On leaving Venture Capital and his vision:
“It was absolutely fascinating, but after a while, you want to succeed with these things not just sort of stumble along. The need for mastery and focus and becoming really good at something drove me towards what ended up being Constellation, a permanent capital vehicle for the vertical market software industry, where you didn’t have to buy and sell the businesses. You could keep them forever, you could build relationships that lasted a lifetime.”
**Update: Looks like YouTube took the video down last night. Sorry!
This is not a recommendation to buy, hold or sell any securities or other financial instruments and does not constitute an investment recommendation or investment advice. I’m merely highlighting people and companies worth learning about. I write purely for entertainment purposes. Always do your own research and consult your investment advisor. I may at any time transact in any of the securities mentioned.