Search Results for: "education of an investment"

On Finding a Job in Finance

On Finding a Job in Finance

Posted on by David Merkel
Photo Credit: Chris-H?vard Berge

I was approached by a younger friend for advice.? This is my response to his questions below:

Thank you for agreeing to do this for me. I would love to have an actual conversation with you but unfortunately, I think that between all of the classes, exams, and group project meetings I have this week it would prove to be too much of a hassle for both of us to try to set up a time.

1. What professional and soft skills do you need to be successful in this career and why?
2. What advice would you give to someone considering working in this field?
3. What are some values/ethics that have been important to you throughout your career?
4. I understand that you currently run a solo operation, but are there any leadership skills you have needed previously in your career? Any examples?
5. What made you decide to make the switch to running your own business?

Thanks again,

ZZZ

What professional and soft skills do you need to be successful in this career and why?

I’ve written at least two articles on this:

How Do I Find a Job in Finance?

How Do I Find a Job in Finance? (Part 2)

Let me answer the question more directly.? You need to understand the basics of how businesses operate.? How do they make money?? How do they control risk?

Now, the academics will show you their models, and you should know those models.? What is more important is understanding the weaknesses of those models because they may weakly explain how stocks in aggregate are priced, but they are little good at understanding how corporations operate.? The real world is not as ideal as the academic economists posit.

It is useful to read broadly.? It is useful to dig into a variety of financial reports from smaller firms.? Why smaller firms?? They are simpler to understand, and there is more variation in how they do.? ?Learn to read through the main financial statements well.? Understand how the income statement, balance sheet, and cash flow statement interact.? Look at the footnotes and try to understand what they mean.? Pick an industry and compare all of the companies.? I did that with trucking in 1994 and learned a boatload.? This aids in picking up practical accounting knowledge, which is more powerful when you can compare across industries.

As for soft skills, the ability to deal with people on a firm and fair basis is huge.? Keeping your word is big as well.? When I was a bond trader, I ate losses when I made promises on trades that went wrong.? In the present era, I have compensated clients for losses from mistaken trades.

Here’s another “soft” skill worth considering.? Many employers are aghast at the lousy writing skills of young people coming out of college, and rightly so.? Make sure that your ability to communicate in a written form is at a strong level.

Oral communication is also important.? If you have difficulty speaking to groups, you might try something like Toastmasters.

Many of these things come only with practice on the job, so don’t think that you have to have everything together in order to do well — the important thing is to improve over time.? Young people are not expected to be as polished as their older colleagues.

What advice would you give to someone considering working in this field?

It’s a little crowded in finance.? That is partially because it attracts a lot of people who think it will be easy money.? If you are really good, the crowding shouldn’t be much of a hurdle.? But if you don’t think that you are in the top quartile, there are some alternatives to help you grow and develop.

  • Consider developing your skills at a small bank or insurer.? You will be forced to be a generalist, which sets you up well for future jobs.? It also forces you to confront how difficult the economics of smaller firms are, and how costly/difficult it is to change strategy.? For a clever person, it offers a lot of running room if you work for a firm that is more entrepreneurial
  • Or, consider working in the finance area of an industrial firm.? Finance is not only about selling financial products — it is about the buyers as well.
  • Work for a government or quasi-governmental entity in their finance area.? If you can show some competence there, it would be notable.? The inefficiencies might give you good ideas for what could be a good business.

What are some values/ethics that have been important to you throughout your career?

Here are some:

  • Be honest
  • Follow laws and regulations
  • Work hard for your employer
  • Keep building your skills; at 57, I am still building my skills.
  • Don’t let work rob you of other facets of life — family, friends, etc.? Many become well-paid slaves of their organization, but never get to benefit personally outside of work.
  • Avoid being envious; just focus on promoting the good of the entity that you work for.
  • Try to analyze the culture of a firm before you join it.? Culture is the most important aspect that will affect how happy you are working there.

I understand that you currently run a solo operation, but are there any leadership skills you have needed previously in your career? Any examples?

This is a cute story:?Learning Leadership.? I have also written three series of articles on how I grew in the firms that I worked for:

There’s a lot in these articles.? They are some of my best stories, and they help to illustrate corporate life.? Here’s one more:?My 9/11 Experience.? What do you do under pressure?? What I did on 9/11 was a good example of that.

I know I have a lot more articles on the topic on this, but those are the easiest to find.

What made you decide to make the switch to running your own business?

I did very well in my own investing from 2000-2010, and wanted to try out my investing theories as a business.? That said, from 2011-2017, it worked out less well than I would have liked as value investing underperformed the market as a whole.

That said, I proceed from principle, and continue to follow my investment discipline.? It follows from good business management principles, and so I continue, waiting for the turn in the market cycle, and improving my ability to analyze corporations.

Nonetheless, my business does well, just not as well as I would like.

I hope you do well in your career.? Let me know how you do as you progress, and feel free to ask more questions.

The Best of the Aleph Blog, Part 27

The Best of the Aleph Blog, Part 27

Posted on by David Merkel

In my view, these were my best posts written between August?and October?2013:

I completed the last of my “Manager” series, on being an investment risk manager:

The Education of an Investment Risk Manager, Part VI

This is the bizarre story of how I pulled a win out of an impossible situation against my own management, and a major life insurer.

The Education of an Investment Risk Manager, Part VII

On the time that I correctly modeled a complex structured security, and the client wouldn’t listen to reason

The Education of an Investment Risk Manager, Part VIII

The time that I?did a competitive study of the most aggressive life insurers, and how it did not dissuade my client’s management team from trying to imitate them.

The Education of an Investment Risk Manager, Part IX (The End)

A bevy of little tales about odd investment tasks that I succeeded with, and how many of them did no good for my clients.

Ben Graham Did Not Give Up on Value Investing in Theory

With quotations and links to the source documents, I show what Ben Graham really said in the article commonly cited to say that he gave up on value investing.

On Avoiding Con Men

A summary article of many of my prior articles on how to avoid being defrauded.

On Alternative Investments

Alternative investments are like regular investments, but they are less liquid, more opaque, and have higher fees.

Should You Buy Shares of Stock or Not?

Where I answer Mark Cuban the one time he tweeted to me. ?Really!

Quiet Companies Are Better

Why companies should let their filings with the SEC speak for them, and abandon the media.

Two is Company, Three is a Crowd

On game theory, and how it affects politics and civil wars.

It Works, But It Doesn?t Work All The Time

On how good investment theories fail for periods of time, and then come roaring back when most people know they will never work again.

Value Investing when Debt Levels are High

On seeking a margin of safety, when very little seems safe

A New Look at Endowment Investing

I interact with a groundbreaking paper on endowment investing — a very good paper, and I give some ways that it could be improved.

Less is More

Do you want to do better in investing? ?Make fewer decisions, and make them count.

Taleb Versus Reality

In which I take on Nassim Taleb’s views on how to reduce risk in investing, and show which half of his valid, and which half are fantasy.

To Young Analysts

What I contributed to Tom Brakke’s project for young investment analysts — what do I think they should know?

The Rules, Part XLIX

In institutional portfolio management, the two hardest things to do are to buy higher than your last buy, and sell lower than your last sale.

The Rules, Part L

Countries are firms that produce claims on assets and goods

The Rules, Part LI

65% of the time, the rules work.? 30% of the time, the rules don?t work. 5% of the time, the opposite of the rules works.

The Rules, Part LII

ge + E/P > ilongest bond

The Rules, Part LIII

The tech market washes out about every eight years or so.? The broad market, which is a more robust beast, washes out far less frequently.? My question: are these variants of the same phenomenon?

The Rules, Part LIV

When do employee and corporate incentives line up?? Ideally, incentive schemes should reward people with a fraction of the additional profitability that resulted from the additional work that they did.? Difficulties: measurement impossible in many cases, people could receive a bonus when the firm is not profitable, neglects synergies (both positive and negative).

The Rules, Part LV

Financial intermediation reduces volatility.? In bull markets, demand for financial intermediaries drops.

The Rules, Part LVI

Leverage and risk eventually transfer to the least regulated

The Rules, Part LVII

The more that markets are united through derivatives, the more systemic risk is created.

The Best of the Aleph Blog, Part 25

The Best of the Aleph Blog, Part 25

Posted on by David Merkel

In my view, these were my best posts written between February and April 2013:

Wall Street Hates You

I have a saying, ?Don?t buy what someone wants to sell you. Buy what you have researched.?

And so I would tell everyone: don?t give brokers discretion over you accounts, and don?t let them convince you to buy unusual bonds, or obscure securities of any sort.? By unusual bonds, I mean structured notes, and eminent men like Joshua Brown and Larry Swedroe encourage the same thing: Don?t buy them.

The Education of a Mortgage Bond Manager, Part III

Why being careful with credit ratings is smart.

The Education of a Mortgage Bond Manager, Part IV

Be wary of odd asset classes; they are odd for a reason.

The Education of a Mortgage Bond Manager, Part V

Where I do odd things in order to serve my client.

The Education of a Mortgage Bond Manager, Part VI

The Education of a Mortgage Bond Manager, Part VII

The Education of a Mortgage Bond Manager, Part IX

Odd stuff, but particularly insightful into some of the perverse dynamics inside investment departments.

The Education of a Mortgage Bond Manager, Part VIII

How I led the successful effort to modify the Maryland Life Insurance Investment Law, and acted for the good of the public.

The Education of a Mortgage Bond Manager, Part X (The End)

Where I explain the odd bits of being portfolio manager, while succeeding with structured bonds amid difficult markets.

Berkshire Hathaway & Variable Annuities

I explain the good, bad, and ugly off of Berkshire Hathaway’s reinsurance deal with CIGNA.

Advice to Two Readers

Where I opine on some Sears bonds, and also on flu pandemic risk at RGA.

What I Would & Would Not Teach College Students About Finance

Mostly, I would teach them to think broadly, and realize the most of the complex investment math is easy to get wrong.

My Theory of Asset Pricing

My replacement for MPT using contingent claims theory.

On Insurance Investing, Part 4

On finding companies with conservative insurance reserving

On Insurance Investing, Part 5

On the squishy stuff, where there are no hard guidelines.

On Time Horizons

People shorten and lengthen their time horizons at the wrong time.

The Education of an Investment Risk Manager, Part IV

On two odd situations inside a life insurance company.

The Education of an Investment Risk Manager, Part V

On how we replaced a manager of managers.

Value Investing Flavors

Explains how there are many ways to do value investing.

Classic: Using Investment Advice, Part 1

Classic: Using Investment Advice, Part 2

Classic: Using Investment Advice, Part 3

Classic: Using Investment Advice, Part 4 [Tread Warily on Media Stock Tips]

Understand yourself, understand the advisor, understand the counsel that is offered, and finally, we wary of what you here through the media, including me.

Classic: Avoid the Dangers of Data-Mining, Part 1

Classic: Avoid the Dangers of Data-Mining, Part 2

There are many ways to torture the data to make it confess what you want to hear. ?Avoid that.

Classic: The Fundamentals of Market Tops

Where I explain what conditions are like when market tops are near.

At the Towson University Investment Group?s International Market Summit, Part 5

Where I answer the question:?Where does academic theory fail in finance and in economics?

Classic: Separating Weak Holders From the Strong

Classic: Get to Know the Holders? Hands, Part 1

Classic: Get to Know the Holders? Hands, Part 2

Articles that explain the fundamental??basis that underlies technical analysis.

Classic: The Long and Short of Trend Investing

How to play trends without getting skinned.

Full Disclosure: long RGA and BRK/B

Ten Years of Investment Writing

Ten Years of Investment Writing

Posted on by David Merkel

I’m late on this.? My first foray into public writing on investing was when I started writing at RealMoney on October 17th, 2003.? But how did I get there?

Sadly, almost all of the works of RealMoney prior to 2008 are not accessible.? My first effort was writing Jim Cramer the day after General American Life Insurance failed on August 10, 1999.? He wrote a short piece asking why no one was paying attention to the failure of a major life insurer.? He wanted to know what happened.? I had heard about the failure, and so I searched for more data on it, and I saw Cramer’s article, only one hour old, so I sent him an e-mail as “your friendly neighborhood investment actuary.”

I explained the situation to him in about three hundred words, and lo and behold, my e-mail was featured in a post by Cramer that very day saying how amazing it was that he could get such a cogent explanation that was not available elsewhere on the web.

Not wanting to wear out my welcome with Cramer, I e-mailed him maybe eighty times over the next four years, with occasional e-mails to Herb Greenberg and Howard Simons.? I e-mailed mostly bond market and insurance information.? But in the period from 2000-2003, information on the bond market from an active institutional participant was interesting.? At least, I thought so, and Cramer usually returned my e-mails, as did Herb Greenberg.

In August 2003, after I had taken a job as an insurance equity analyst at a financial services only hedge fund, Cramer e-mailed me, asking me to write for RealMoney.? I don’t have the actual e-mail, but he said something to the effect of “You write better than most of our contributors.? Please come write for us.”

I went to my boss to ask permission, and he refused.? After some pleading on my part, he eventually relented.? That said, when Cramer wanted me to appear on “Mad Money,” he refused, and did not give in.? He did not want the name of his firm associated with Cramer.? I was disappointed, but I understood.

At RealMoney, I wrote about a wide variety of topics as I do at Aleph Blog.? My editor one day called me and after we chatted for a while she said to me, “Did you know that you are our most profitable columnist after Cramer?”? I expressed surprise, and asked how it could be.? She said that I wrote more comments in the columnist conversation than most, and my comments were substantial.? Also, readers would read and re-read my posts, which was rare at RealMoney.

My objective was to teach investors how to think.? I did not want to get into the “buy this, sell that” game.? My most unpleasant memories revolve around bad calls that I made on a few stocks.? I think it was fewer than five stocks, but when you get it badly wrong, passions are heightened.

Cramer and I often disagreed with each other at RealMoney.? I felt I had friends with Cody Willard and Howard Simons, and a few others like Aaron Task, Roger Nussbaum, Peter Eavis, etc.? If I didn’t mention you, please don’t take that as a slight, I just can’t remember everything now.? I thought highly of most of the cast at RealMoney, including the news staff, who would occasionally call me for advice on bonds, insurance, or investing theory issues.

I resisted the idea of starting a blog.? I said to my editors at RealMoney, “The Columnist Conversation is my blog.”? But in early 2007, while trolling the comment streams on Jim Cramer’s blog, and making comments defending him, a number of readers told me that I was one of the best writers on the site, so why didn’t I emerge from Cramer’s shadow?

I thought about this hard for about a month, and then I did it, after doing my research.? I created Aleph Blog, with the first post coming on 2/17/2007, and the first real post on 2/20/2007.? That first real post was prescient, and laid out a lot of what would happen in the bust.

But as I started, the Shanghai Market crashed, and Seeking Alpha pushed one of my posts to the top of their front page.? Cody Willard pushed another post of mine to his media contacts.

I was off and running without doing that much to advertise my blog.? I appreciated that because I think the best way of advertising my blog is to write good content.? I don’t generally like to quote large amounts of the writing of others, and add a few comments from me.? To me, that seems lazy.? I would far rather spend some time, and give you my thoughts.? I’m not always right, but I am always trying to give you my best.

After ten months of blogging, I stopped contributing to RealMoney because I liked the editorial freedom that bloggng offered.? I was never writing for RealMoney in order to get paid, so not getting paid at Aleph Blog was not a problem.

At Aleph Blog, I write about what resonates within me.? That usually produces the best results, though because I write about a wide variety of topics, some people don’t know what to expect of me, and aren’t interested in what I write.? I understand that, and I am not unhappy with a smaller audience.

What I did not expect when I started blogging was that I would do:

  • Book Reviews
  • The Education of a Corporate Bond Manager
  • The Education of a Mortgage Bond Manager
  • The Education of an Investment Risk Manager
  • The Rules

and other series at my blog.? I did not consider that I might be a conference blogger for notable institutions like Bloomberg and the Cato Institute.

I also did not realize that I would take aggressive stances against a wide number of semi-fraudulent financial practices like penny stocks, structured notes, private REITs, and a wide variety of other bad investments.

It’s been a lot of fun, and I did it to give something back.? With great power comes great responsibility, and that is why I blog.? Nothing more, nothing less.

May the Lord Jesus Christ bless you.

Thanks for reading me.

David

On Blogging Long-Term (Post 2200)

On Blogging Long-Term (Post 2200)

Posted on by David Merkel

When I started blogging in February 2007, I did not know that I would be able to write on new topics for so long.? But I committed to writing two short posts a night initially, which became one long post per night, excluding the Sabbath.

I have admiration for many of the long-term bloggers who churn out content regularly.? It takes effort.? It’s not easy to come up with fresh content on a regular basis.? My well is not dry, but sometimes I wonder.? Still, I have the following when things seem dull:

Much as I have non-consensus views on many matters, it is not my goal to write about those views all of the time.? I want to teach people about investing, and get them to avoid many of the traps that are common in the markets.

I try to write about a wide number of issues in the markets, both hot and cold, private and public.? My goals is to create skeptical investors that invest in valuable investments after doing sufficient research.

Much as I have become a better writer through blogging, that was not my goal in writing here or at RealMoney.? It is my goal to educate.? I want people to make better decisions, and avoid the scammers who push illiquid investments.? If an investment is illiquid, it deserves three times the scrutiny as to its value.

Avoid investments that lock up your funds.? I have two of them, one an incredible success, and one a horrible loss. On net, I have won, but I wish I had not invested in the loser.? Hindsight is 20/20 — could I have seen it in advance?? No.? Nor could I have seen the incredible turnaround in the other investment, which is now distributing 30%/year.

I like writing for my audience.? And thanks for reading me.? I am open to allowing a simpler commenting system.? If that is something you would like, please let me know.? In the past, I have been reluctant to do that because many comments on the internet are low value.? But if you want me to loosen up comments, let me know.

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