Pre-High School. I could not ask for a better family background – wonderful parents with a great marriage, and brothers who are two of my best friends in the world. Sports dominated growing up – basketball, baseball, soccer, golf and skiing. Basketball was my first sports love, and I thought I could work my way into the NBA (haha).
It’s truly amazing how sports reveal long-term character traits at such a young age. In a position to make a game-changing hire, no question my first background check would be sports coaches. At a young age I demonstrated a voracious work ethic that I maintain to this day, but also a propensity to shun coaching advice I deemed inferior to my own knowledge – something that I fight to this day. Since then, I have made enormous strides in listening to advice that I perceive to be redundant to my own current knowledge (original advice I can’t get enough of!) – however, I still need to “figure it out” myself before I can truly make it my own.
Another trait readily apparent in my early basketball career was over confidence (putting it kindly). I knew I worked harder than everyone else on the team, so I had little patience for others’ incompetence. This was dangerous, as it made me vulnerable to becoming too comfortable in my own abilities. No question I was a better player and more appropriately confident when playing with superior players, as my focus was on beating them (if opposing) or becoming better than them (if a teammate) rather than basking in my own work ethic. What is so phenomenal about the investment “game” is that you are ALWAYS competing against superior talent. There is zero room for overconfidence. The second I get comfortable with a position and/or a good quarter, Mr. Market is more than willing to apply disciplinary action.
High School. I developed an obsession with lifting weights early on, lifting routinely with my dad in our basemen, and by late middle school I was stronger than average. I was explosive from playing/training for basketball, so by the time I got to high school I was recruited to play football. I had always wanted to play, so it was an easy “yes”. My high school had a highly competitive basketball program, and I quickly found out a 5’11 “jacked” football player was not going to last long, no matter how great a work ethic. My football buddy, slower and faster than I, had good success putting the shot during the indoor track & field season, so I figured I would give it a shot (no pun intended) in the spring season. Shot put was a match made in Heaven – my natural explosiveness, love of lifting weights and affinity for technically-oriented endeavors fit perfectly with the highly technical, explosive nature of shot putting. I went on to throw 58’, and win three state championships and one regional championship (i.e. multiple states).
Perhaps some would advise to not discuss grades unless you were a 4.0 student. I really don’t care – I’ve been far more successful than many 4.0 students I knew in high school, and am convinced that being a 4.0 is 90% having an organizational/perfectionist bent, of which I have not. With that said, I am under no illusion that those with a 4.0 + work ethic + natural abilities will not best me in many different areas of the investment universe – thus, in order to compete, it is my job to define my “circle of competence” and stay within it.
Unfortunately I do not remember specifics, but I believe I graduated with at least a 3.5 (out of 4) and an SAT score over 1200. I know I started out in the 3.75 range, but migrated downward as I added more honors and AP classes to my schedule. For those whom AP scores mean something to, I received a “2” on the History and English AP tests, which neatly foreshadowed poor grades in my early college years, as I had a rather severe touch of “senioritis” and was focused far more on throwing 60’ in the shot than achieving the necessary “3” grade in order to qualify for college credit.
College. As noted above, I began college on an atrocious note. “Senioritis” carried over into my study habits, I didn’t want to leave home and I was burned out with track due to over-training in an attempt to throw 60’. I believe my GPA was around 2.5 my first semester, maybe even worse. It was so bad that my track coach had to tell me to get it together so I could keep my scholarship (beyond embarrassing). Unlike my high school, which primarily utilized essays for testing, college was pure multiple choice. I hated the multiple choice sections of the AP tests, and I hated them even more in college. Lastly, I loaded my schedule with all of the “gen-eds” I could take – English, Bio, Humanities, Earth Science, etc… – so I could cleanly move on to my Political Science major courses. Boring classes combined with an unfocused mindset proved a toxic mix – the grades received in these classes would haunt my GPA for the rest of college. My junior year I switched majors to Public Administration, which gave me the ability to take businesses classes (more on this later). The switch allowed me to focus on something I was interested in, which ultimately helped me climb at least part way out of the GPA hole that I had dug. I finished college with a 3.0 GPA.
I eventually found my stride in track toward the end of my first semester, and ended up throwing over 53’ that season, which was approximately 63’ with the high school shot (12 pounds v. 16 in college). My goal was to add approximately 5’ per year to my throw, so it was a successful season on a personal basis. I was an “All American” (i.e. top 6) at the indoor and outdoor national meets, but had some work to do to win nationals. Sophomore year I put together a textbook season, a veritable clinic on how to “peak” for big meets. I finished 2nd at both the indoor and outdoor national meets with throws of 57’5” and 58’5”, respectively. I was in perfect position to throw over 60’ and win nationals my junior and senior years, but over-training (again) and injuries ultimately derailed my course. And to be honest, I caught the investment bug my junior year and my attention was diverted…
The Journal. After I began seriously dating my now wife sophomore year, I started thinking past the immediacy of throwing far, and onto what I ultimately wanted to do. Politics never really caught, and I began leaning toward business. I was too far along in my Political Science classes to switch majors entirely and still graduate on time, so my best bet was Public Administration, which allowed me to retain my Political Science credits and pursue a quasi Finance minor (there was no official Finance minor). My first business class was Accounting 101…
…To use a sexually-laced, Buffett-esque analogy, I was like an 18 year old male who just found out women existed. It was crazy. The concept of analyzing real live businesses, coming up with a fair value and buying at a discount hit me over the head like a ton of bricks. As Buffett says, it either hits you or it doesn’t. For better or worse I had been steamrolled.
It’s funny because I was good friends with a business buff in high school and roommates with an investment fanatic in college, yet you couldn’t get me NEAR a Wall Street Journal until Accounting 101 my junior year. I read anything and everything I could get my hands on that had to do with Warren Buffett. By second semester junior year I was reading Security Analysis and did my first detailed DCF analysis. As mentioned before, my throwing career certainly took a hit from my newfound investment obsession – I had a stack of Journals with me on every bus trip.
I continued my reading rampage all summer long, taking full advantage of an incredibly boring internship to print probably ten stories worth of material; I attended a 4-week class at the Investment Banking Institute; and I met the most influential person thus far in my career, a high-level MD on the “Street” whose kids went to my high school.
CFA. Upon the advice of the mentor mentioned above, I began studying for Level 1 of the CFA when I got back to school in the fall. I had a flexible course load senior year, which allowed me to study for Level 1 full time. I went on to pass all three levels on the first attempt.
Residency. In the wake of Lehman Brothers and Buffett’s “Buy American. I am.” op-ed, I launched a “fund” called the “Value Opportunities Fund” (November 30, 2008 I consider to be the start of my investment “Residency”). I rounded up probably $3,000 from friends and family, and started trading in a Sharebuilder account. Of course I knew nothing about securities laws and registration, etc…but I thought, if the greatest investor on the planet is going all in, and I can find all of these incredible bargains going through Value Line, why not start developing a track record? I put all of the money to work in December 2008, and promptly watched it crater over -40% through the March 2009 low. I rebounded strongly, mentally weathering the decline surprisingly well looking back on it, but soon after the March 2009 bottom, I got my first taste of “market timing”…
…A mutual fund shop I became familiar with in college puts out a weekly market commentary. From what I had seen, they had a pretty strong record of “calling the market”. Soon after the March 2009 bottom, they began preaching about “bear market rallies” and the potential for “new secular bear market lows”. Having just got my “fund” back to even, I was not about to put my friends and family through another -40% decline again, no matter how little money they had with me. So I closed up “shop” and returned the money. In late 2009 I began investing my own capital again. Again, under the “guidance” of the mutual fund shop, I fully hedged my portfolio in anticipation of new bear market lows. With the wonderful addition of the likes of John Hussman, Prem Watsa and Seth Klarman to my reading docket, I would go on to endure four excruciating years of worrying about the market.
While my investment residency was brutal training, I made it out alive with capital intact. I consider the opportunity cost from market timing the last four years to be a far cheaper, and more valuable, than B-school. Underneath the fully-hedged, overly-active portfolio management, I developed my investment style and circle of competence. While Mr. Market never ceases in his tutelage, I believe I have reached a point of investment maturity to publicly document my process and performance.
Subsequent posts will detail the lessons learned from residency.