🎙 The Learning Mindset for Investors with Alix Pasquet
“There's so much information that you have to use filters to learn. The problems you have to solve serve as filters. Also smart people, your goals, even the investments you make."
Video on Youtube: Learning for Analysts and Future Portfolio Managers.
You can find the presentation and transcript here.
I recently had the great pleasure of recording a talk with my friend Alix Pasquet III. Alix is the Managing Partner and portfolio manager at hedge fund Prime Macaya and has been a friend and teacher to me for years. He is one of my favorite sources of ideas and book recommendations.
In this presentation titled Learning for Analysts and Future Portfolio Managers Alix shared his framework for becoming a learning machine. Despite the title, many of the concepts apply to life and business more generally.
The talk contains three sections: problems, mindsets, and conditions, procedures, and action steps.
Problems deals with unique issues facing investment analysts.
Mindset tackles meta ideas about learning, including Alix’s emphasis that “learning is behavioral change.”
“If your behavior hasn't changed, you haven't learned. Learning is not sitting on a desk, and cramming your brain with knowledge that you're going to recite one day.”
Similar to the point I made in The Reading Obsession, he recommends balance between solitary learning (read a book, listen to a podcast etc.) and learning by engaging with the world and being social. This can be particularly important for people living in intellectual bubbles that easily turn into echo chambers (looking at you, New York and San Francisco…). As Alix likes to quote:
“A desk is a dangerous place from which to view the world.” John le Carré
This one was a little tangent but a mindset worth pointing out:
“The first mindset is don't do this job for the money. This is a very painful business. You're constantly faced with your mistakes. The sort of pain that you take on a daily, weekly, even yearly basis, you better love the business, if you're going to last at it. And if you're going to do this for the money, yeah, you might get lucky and start in 2011 and go through 2021 and you made a lot of money. But odds are the first time that the market teaches you a lesson, you're going to quit and not have the result.”
The last sections contains frameworks, ideas, mental models, and books that can make you a better investor.
Below are a few of my favorite quotes on mentors, studying great investors, culture at Tiger, failure point analysis, and the intriguing metaphor of futsal — accelerated learning due to a high number of reps over a short period of time. Something I want to look out for in the future. Enjoy!
“The first condition you want to create is having mentors. Stanley Druckenmiller says, if you're early in your career, and they give you a choice between a great mentor or higher pay, tick the mentor every time it's not even close. And don't even think about leaving that mentor until your learning curve peaks. Nothing to me is so invaluable as having great mentors. And a lot of kids are just too short sighted in terms of going for the short term money instead of preparing themselves for the longer term.
Two problems here. One, how do you find a mentor? I would start with people in your field that you have direct access to or somebody else can introduce you to and you want to approach them. And you approach them using a technique that I learned from a professor at Columbia University. He says you approach them with three prongs. First prong is ‘this is what I admire about you.’ The second prong is ‘this is what I can do for you.’ And the third prong is ‘this is what you can do for me.’ Always make what you can do for them greater than what they can do for you. And if they don't respond, persist. One thing to remember about highly successful people is they got to where they are through persistence. And what they really respect is people that show persistence.
The second problem you're going to encounter is how to be a good mentee. Part of the value they're going to add to you is not only teaching you things, but also introducing you to other people. And they're only going to do that if you're a good mentee. So follow their advice, show that you've put it into motion. If it worked, you tell them. Be grateful. If it hasn't worked, also tell them. They're going to want to give you even more advice. And when they see that you respond, and that you're somebody that is not wasting their time, then they'll introduce you to other people.
The third problem, I call it the upgrading your mentor problem. Once you've gotten to a certain level, you start realizing that you need another mentor to get you to the next level. And what a lot of people do in a way is totally ignore the guy that helped you to get to the previous level and the upgrade to the next guy. That's a big problem. Well, if you keep doing that, and succeeding, you won't have a problem. But the problem happens when you fail at one level. And the guide that you left at the previous level is not there to pick you up as you fall. So take your mentors along with you on your path to success.”
“Futsal is soccer at the fraction of the size of a football team pitch. The number of players is smaller. You would think that it increases the number of strategic interactions by double but actually it increases the number of interactions by eight to sometimes 16 times. And what that does is you're learning at a very, very fast clip. And one of the patterns that we've seen is great investors often have gone through a futsal period in their careers. So Dan Loeb, for example, in the early 90s, he worked at Jeffries right at the moment when the Resolution Trust Corporation was selling off the problem assets of the savings and loan debacle at discounted prices in a two year period. He saw a deal every few days. And that increased the number of reps that he saw. But also, he had great customers, he had a young David Einhorn and a young David Tepper as customers. And the exposure and the reps were amazing.”
Failure points analysis
“This is the main tool I used before I started my fund. I made a list of the smartest analysts, PMs, allocators, brokers and set up meetings with them. I said, Hey, I'm about to start a hedge fund. How can I fail in starting a hedge fund? The initial things they said I wrote down and went through each category. How can I fail at idea generation? How can I fail at portfolio management? How can I fail at risk management? How can I fail at hiring? How can I fail at leading an investment team and so on. I learned from each individual conversation but the full leverage was how much I learned from the aggregate conversation, because I found patterns that even some of the people I spoke with did not know about. This is a process that I do every couple of years.”
Studying great investors
“You want to study great investors, CEOs and leaders, but again, be careful of hero worship. I think we often imagine these individuals have qualities or abilities that are better than anyone else’s. And some do. But mostly they're schmucks like us. They have the same weaknesses, patterns, they self sabotage. And don't think that they play perfectly. Very often, they also may have gotten lucky and have gone through a certain environment. Other times, they have support structures that we don't see. You have to remember that you're never going to be able to replicate what they've done. Mostly because we're not going to go through the same environment that they went through.
So how should you study a hero? You want to study their initial conditions. What was the early context, circumstance and environment that shaped them? One thing that is often ignored by Buffett and Munger, for example, is that they grew up in the aftermath of the Great Depression. That really impacted the way they saw things. No wonder they were infatuated with value investing early on. Who were their connectors, who were their filter aggregators. What hubs did they spend time at? Who was there? What books were they influenced by? For example, Elon Musk loves the books of Iain Bank, the science fiction writer? What was their secret advantage? Sometimes they have an advantage that they never talk about, and figuring out what that is can lead to insights.”
Teaching at Tiger
“I'm going through all of my anecdotes that I've picked up over the years. And there were two guys inside of Tiger in the 90s. One of them was Andreas Halvorsen. The second guy shall remain unnamed. If you were a young analyst, you went up to Andreas and said, Hey, I really like this idea. I want to pitch it to Julian. Andreas would say, let's work on it together. I'll help you shape the idea, point you in the right directions, the strengths and weaknesses of the idea, the process they should take, and so on. And then once you're ready, go and pitch it to Julian. And that analysts would go and pitch to Julian and Julian wouldn't even have a clue that Andreas had pushed this guy forward.
The other guy would take the idea and speak to Julian and say, you know, I spoke to so and so. He's got an idea. I think the idea is okay, but it's not really fine tuned yet. I'm going to help them fine tune it. And then they would go and do that. That young analyst never really got the full credit from Julian. Guess which guy is actually the wealthiest and most successful fund manager today? And by the way, the second guy is also very successful, doesn't matter. But it's Andreas, right? So you want to be that guy. You want to have a cultural impact on your business. Be the teacher.”