When I started at Tufts University in the fall of 2006, I thought I had it all figured out. I would study International Relations, pass the Foreign Service exam, and begin a career in the State Department bouncing between far flung embassies.
Then serendipity intervened. Every freshman student was assigned to a pass/fail course taught by a pair of seniors. The idea was that the seniors would help us acclimate to college life while hopefully teaching us something in the process.
Prior to arriving in the fall, we were given a list of these pass/fail courses to choose from and were asked to rank our top three. I do not remember what my top two choices were, but my third choice was a course entitled “A Walk Down Wall Street.” You can guess to which class I was assigned.
And so began my unanticipated journey as an investor.
Fifteen years later, I find myself on the receiving end of requests for advice from college students who aspire to enter the investment management business. I have been given plenty of help along my journey so far and owe a lot to my mentors. So, I try my best to pay it forward and be helpful.
It recently occurred to me that it might be worthwhile to write down some of the thoughts that I share with the students who reach out to me. I believe it is important to point out that these are only my opinions, based on my experiences. There are many paths to becoming an investor and reasonable people can disagree about what constitutes the best preparation for a career in this wonderful, challenging, and multidisciplinary occupation.
With that out of the way, here are a handful of thoughts to consider:
• Study hard. Grades matter. As a student, learning is your full-time job. Future employers will want to see that you took this job seriously. For better or for worse, grades are a reflection of how well you perform in your studies.
• Study what interests you. College is an incredible opportunity to be curious and expand your horizons. From my point of view, engineering, psychology, philosophy, and English are equal to or better than economics, accounting, finance, and mathematics in terms of preparing you for a career as an investor. As Charlie Munger often points out, investors who can draw on the big ideas from many disciplines have an important advantage. So, the ultimate objective is to master the art of learning (also the title of a fantastic book by Josh Waitzkin). In other words, I think spending your time in college discovering how to learn is more important than what you learn. Most large financial firms have extensive training programs for new hires that will bring you up to speed, no matter your area of focus in school.
• Join an investing club. Internships and entry-level positions in finance are highly sought after. Excellent grades from a top school have become table stakes. They are required to get the interview. To get the job, it helps to differentiate yourself. If the goal is to become a professional investor, it is important to demonstrate your interest in investing! Taking a few finance courses probably will not get the job done. For me, joining the Tufts Financial Group, a student-managed portfolio of stocks and bonds carved out from Tufts’ endowment, was the highest-return decision I made during my time in school. If your school has an investing club, join it. If your school does not have an investing club, consider starting one!
• Manage your portfolio. The most important question I ask during an interview is “What do you own in your personal portfolio, and why?” It is make-or-break. Surprisingly few candidates manage a portfolio of their own and even fewer can speak thoughtfully at some length about their investments. It is often where a candidacy ends. My advice: manage a portfolio! Keep a journal of your investment activity. Write down your rationale when you make an investment. Do the same when you sell. Keep tabs on your returns. Keep it neat and organized, and be prepared to offer it to your interviewer along with your resume and cover letter. Trust me, it will go a long way! One final point: the size of the account does not matter at all. It can be a virtual (i.e. not real money) portfolio. It is a test of passion, curiosity, insight, and judgement – not of wealth.
• Read. Reading is an incredibly important aspect of an investor’s education. Choosing the right books will directly impact the quality of that education. Every successful investor probably has a unique list, and I have included a short list of my own at the end of this piece. Recently, there has been a proliferation of investing-focused podcasts as well. Many of these are worthwhile, and I consider them another form of reading, especially since I listen to most books on Audible while walking the dog anyway!
• Mentors. I cannot overstate how important it is to cultivate mentors. The simple fact is that we do not have all the answers, and there are people out there with the experience and willingness to help us. That said, I realize that it can be difficult to find good mentors, so here are a couple tips.
First, start by identifying a few people who you respect and look up to. These can be relatives, teachers, family friends, colleagues, or complete strangers.
Next, learn as much as you can about them. If they have written a book, read it. If they have given interviews, listen to them. Make sure to study what is readily available before asking for one-on-one attention.
Finally, do not be afraid to make contact. When you do, I would suggest a short e-mail that explains briefly who you are, makes it clear that you have done your homework, and lays out the questions you would like to explore. Open-ended requests to “discuss your career path” can come across as lazy and insincere. Be specific with what you would like to accomplish.
One final point. It is possible to have mentors who you rarely or never speak with. In fact, your mentors do not even have to be alive! Derek Sivers wrote an excellent essay on how this can be done, found on his website, entitled “How about ask your mentors for help.” Remember that your mentors are likely to be busy people and requests for their time should be made judiciously.
• Go to the city. I live and work in a small town. Many great investors have chosen to set up shop far away from New York, San Francisco, or London, and for good reason. That being said, many of them started out in those cities. You probably should, too. There is tremendous value in seeing first-hand how these centers of finance operate – how the “sausage is made” so to speak.
Large firms, such as investment banks and large asset managers, tend to offer the best vantage points to observe and learn. They also offer excellent training programs and the opportunity to interact with a lot of intelligent and hard-working people. Starting out at one of these firms will help you build a solid foundation on top of which you can build a career in a wide variety of specialties.
In particular, the combination of investment banking and private equity has become a highly sought after pedigree. Candidates with those two prior stops on their resume are presumed to be hard-working, well-trained, and polished. It is not the only path to a career as a professional investor, but it is the best path I know of today.
I would resist the temptation to start somewhere small even if that is where you think you will eventually end up. You might deprive yourself the opportunity to explore paths that you do not even know exist. I understand that big city living is not for everyone. Do not worry, it is just for a few years and you will be working most of the time anyway.
• Mistakes. There are different kinds of mistakes. Some are “acceptable” while others are not. When you are a first year analyst working on a financial model, inputting the wrong financial data is an unacceptable mistake. Here is a short story from my own experience.
When I was just starting out at Goldman Sachs, my team was launching coverage on the restaurant industry. This involved building financial models from scratch for all the companies we were going to cover, plus industry models, currency models, and commodity models. It was a large undertaking, and I worked day and night on the task. When the time came to review these models with my manager, he would express great dismay whenever he discovered a mistake. He made it very clear how disappointed he was, even though, by and large, I thought that I had done good work. One day, I mentioned this to my uncle. Really, I was complaining to him that my manager did not seem to appreciate all the hard work I was doing. My uncle replied, “Chris, in school 95% means you get an A. In the workplace, 95% means you had a 5% error rate, and a 5% error rate is completely unacceptable.” This response opened my eyes and changed my perspective. It was an important lesson about attention to detail, and the importance of avoiding preventable mistakes. My manager was absolutely right. Mistake-free work should be the standard. I took that lesson to heart and it has made all the difference.
The second kind of mistakes, which are both inevitable and important learning moments, relate to bad judgements. In this case, we are talking about misjudging businesses and people. One of my mentors is fond of pointing out that: “Good judgement comes from experience, and experience comes from bad judgement.” The important idea here is to learn from your mistakes. When you make an error in judgement, revisit your decision-making process with honesty. You do not have to beat yourself up, but you should try to be clear about the error and extract the lessons that can be applied to future judgements. As a young analyst at a large firm, you may not be asked to make many of these judgement calls right away. See if you can learn from those around you or spend some of your (admittedly limited!) free time thinking about businesses, and learn as those thoughts are proven right or wrong.
As I look back over this list, a common theme emerges and reminds me of a piece of advice I received as a first-year analyst:
“Always aim to do truly excellent work. Often, excellent work is lost by not doing just a little more.”
I think about that advice often. When I am preparing an investment write-up, I pause before hitting “send” to go back through it one more time. I ask myself whether there is anything more I can do to improve it. Can I more clearly articulate the conclusion? Is the analysis clear? Can it be made more concise? I do the same when preparing for a meeting with a client or a management team. This is a competitive industry and not everyone will succeed. Give yourself the best chance by always doing just a little bit more.
That is just about it. I hope you find it helpful!
*****
Some books recommendations to get you started on your journey as an investor:
- Money Masters of Our Time by John Train
- Common Stocks and Uncommon Profits by Philip Fisher
- 100 to 1 in the Stock Market by Thomas Phelps
- The Essays of Warren Buffett arranged by Lawrence Cunningham
- The Outsiders by William Thorndike
- The Little Book that Beats the Market by Joel Greenblatt
- The Psychology of Money by Morgan Housel
- 7 Powers by Hamilton Helmer
- Business Adventures by John Brooks
- Surely You’re Joking Mr. Feynman by Richard Feynman
- Zen and the Art of Motorcycle Maintenance by Robert Pirsig
- The Art of Learning by Josh Waitzkin
Chris Cerrone
The investment examples included herein have been selected based on objective, non-performance selection criteria, solely to provide general examples of the research and investment processes of Akre Capital Management. The investment examples should not be construed as an indicator of future performance. The information presented above should not be considered a recommendation to purchase or sell any particular security. There can be no assurance that any securities discussed herein will be a part of any portfolio or, if sold, will not be repurchased.
