The most wonderful time of the year is upon us. No, not Christmas. I am talking about football season. I am so excited for football if for no other reason than it will get my mind off the market's terrible performance of late. While I am already more than tired of hearing about how Quincy Carter got into the wrong coke after graduating from UGA, how Ricky Williams prefers the grass to turf, and how TO is already complaining about something as dumb as wearing shorts over his tights, I did hear a rather common but always interesting debate lately. Who is the tougher quarterback: Favre or McNair? Who is the better play action passer: Pennington or Manning? Who is more important to his team: Vick or Brady? And best of all, what characteristics would you piece together from different players to create the ultimate player.
This sort of a debate happens all the time about everything from sports to politics to ice cream flavors, but I have never heard it about designing the ultimate investor. When I haven't been watching football shows lately, I've been spending my time trying to figure out exactly which niche of the securities business I want to enter and perform the best in given my strengths and weaknesses. Naturally, I pieced the two activities together. It would be hard to argue that Warren Buffet isn't the greatest ever, but does that make him the perfect investor? Despite his unbelievable talent, it wouldn't be much fun to simply call him perfect, and so I decided to set out to try and create the perfect investor.
The one characteristic I would have to use from the aforementioned Mr. Buffet is his commitment to long-term value investing. It always seems that no matter what the markets are doing, Buffet finds a way to sort through all this noise and find undervalued, companies; but can we call Buffet a better value investor than his predecessor, Benjamin Graham? While Graham does get the edge for revolutionizing this field, the student has surpassed the teacher to the tune of some $40 billion, so I will give the nod to Buffet. Another forte of Buffet's is his ability to find under-the-radar investments before everyone else, but for this, I am most impressed with Morgan Stanley's Senior US Investment Strategist Byron Wien. Every year in January, Mr. Wien comprises a list of 10 events most on the street give less than a one-in -three probability of occurring. Over the years, he has consistently been able to be correct on more than half of these ten surprises, leading to rather impressive results. For example, at the beginning of 2003, Byron predicted that Brazil would lead Latin America to a stock market recovery, and low and behold the Brazilian equity market returned had a healthy return that year.
Next, most successful investors are confident and comfortable taking risks. This is important because without confidence in your positions, you will be selling too early and buying too late. Although they took it just a little too far, no one exceeded in this quality quite like the staff at Long Term Capital Management (LTCM). LTCM was so confident that their bets would pay off they reached a ratio of liquid assets to debt of around 30 to 1, over $100 BILLION in debt, and over $1.25 TRILLION in positions so they could suck up every dime possible. As if this doesn't show enough confidence, the head trader Victor Haghani was convinced his positions would come back around despite losing over $500 million dollars in one day.
Another important quality, particularly for traders like Haghani, is being energetic. If not the long hours, the stress of the ups and downs of the market can certainly wear on an investor, but if you have ever see Kudlow and Cramer on CNBC, I need say no more as to who I'm picking here. Complementing this characteristic is the desire to work hard, which is particularly important for investment bankers. It goes without saying that one has to really love their job to be willing to work a hundred hours per week. Maybe it is just because theirs is the most vivid account I have ever read, but I would consider the hardest workers to be people like John Rolfe and Peter Troob, authors of Monkey Business: Swinging Through the Wall Street Jungle. Their shocking details of a complete lack of sleep on an eight-day road show through Europe and late night activities at the office aren't exactly admirable, but show commitment nonetheless.
One final characteristic of mention is sales power. Without money to invest, your ideas don't really mean much. In Den of Thieves, Martin Siegel is outlined as Kidder, Peabody & Co.'s "golden boy" who was able to keep the firm afloat as it struggled, merely by his ability to constantly bring in new money.
No matter what investment strategy one takes or what qualities they have, the single most important ability is to consistently outperform the market whether it's up or down. The investment game is simple: put up performance or you're gone. This is where Buffet truly excels, but unlike the common investor, he doesn't just buy shares in companies, he buys the whole company. So, for this characteristic, I credit Peter Lynch, who is my favorite investor of all time for his common sense approach. Fidelity Magellan Fund returned an astonishing 28 fold per share between May 1977 and May 1990 without ever having a losing year. Clearly, I have never heard of everyone to grace the investing community with their talent, and I have had the opportunity to meet even fewer of them, but from the books I have read, this is how I envision the perfect investor. So go ahead and let the debate begin because when it comes to arguing over what exactly defines perfection, because I suppose everyone has their own ideas as to what it takes to be successful.