Is 40 The New 20?
On Tuesday, April 26th, I turn 40 years old. Every man I've talked to tells me "turning 40 is easy, wait till 50 hits you -- that's a tough one!". There are some excellent blog posts on turning 40, like this one, but I decided to write something different and hopefully this post will give young and old food for thought as I jot down my thoughts on life, health, relationships, work and investing.
Before I get to "turning 40," I want to go back to my last blog post on the big secret to clarify a few things. First, I never heard of Joel Greenblatt nor of his hedge fund, Gotham Capital (it vaguely rings a bell). Second, even though I agree with him that most small investors are better off investing in Value Index ETFs in their stock portfolios, I also recognize that it all depends on where markets are at the time. For example, when I wrote my Outlook 2009 on post-deleveraging blues back in January 2009, I totally missed the boat on US banks but was spot on about high beta stocks and recommended some gems like Priceline (PCLN) that turned out to be one of the top performing large cap stocks since then, going from $40 to over $500.
I think what Mr. Greenblatt is recommending makes sense over a very long period because with small cap value stocks, you shouldn't experience the volatility of large cap growth stocks. Having said this, nobody knows what the future holds, where the next bubble will be and how long it will last, which means that things can get really out of whack for a lot longer than people expect.
In my last post, I also mentioned that I prefer investing in a few stocks which I track very closely. I'm a risk taker. My personal P&L swung from -50% to +80% in the last year because I tripled down on a position at the right time. Did I get lucky? You bet I did, and admit it, but at the end of the day, I had the balls to do what most institutional investors (even hedge funds) would never do (not that they can do it even if they wanted to because they're constrained by investment management agreements). And forget prop traders, they would never triple down on any position that they're losing money on. That's suicide in their world where they're focused on making money day in, day out, trying to avoid having a risk manager breathing down their neck.
I did what I did because I read the overall market correctly, understood that liquidity would push risk assets higher, and also understood that the solar stock I tripled down on was heavily manipulated by top hedge funds which were naked short-selling it to scare retail investors away so they can scoop up more shares at lower prices. They're still at the naked short-selling game, using high frequency computers to scare retail and other institutional investors away.
These markets are not for the feint of heart, which is why I believe most small investors are better off investing in low cost value ETFs and laddered bond portfolios and sleep well at night. The gold bugs will tell you to buy gold but I'm uneasy recommending gold because I don't see any reason to chase it higher. In fact, as the US economy improves over the next few months, gold prices will likely get hit even if oil prices keep climbing higher and Inflationistas warn of looming hyperinflation (won't happen without wage inflation).
The other thing I mentioned in my last blog post is that I track quarterly filings of elite hedge funds, some of which I listed in a previous blog post on why small is beautiful. I also track top long-only funds that are not afraid of taking concentrated positions (ie. they're not closet indexers). Guys like Bill Miller of Legg Mason Capital Management didn't beat the S&P 500 16 years in a row by being a closet indexer. Sure, he got slaughtered in 2008 -- and so did Ken Griffin's fund, Citadel -- but these funds came roaring back in the last two years. I wouldn't have hesitated a minute to increase allocations to these funds at the bottom when most institutions were redeeming from them because I knew they'd come roaring back (even recommended institutions invest in Citadel in the middle of the storm).
All this to say that even "elite" managers can experience a terrible drawdown, but over a long period, these elite managers know how to adjust their risk taking accordingly. You won't find many managers with the track record of a Warren Buffet, George Soros, Bill Miller, Ken Griffin, Seth Klarman, Jim Simons, Ray Dalio, Bruce Covner, Alan Howard, and a handful of other "elite" managers.
But now that I'm turning 40, let me introduce you to two of my favorite investment managers of all-time. The first is Monroe Trout, arguably one of the best traders ever. There is a whole chapter dedicated to him in Jack Schwager's book, The New Market Wizards, with the title of the chapter "The Best Return That low Risk Can Buy". According to Schwager, over a five-year period surveyed, Monroe Trout's average return was 67% "but, astoundingly, his largest drawdown over that entire period was just over 8%." That's simply incredible, almost doubling his money every five years with little or no risk. Mr. Trout quit the business early and remained humble throughout: "Some people make shoes. Some people make houses. We make money, and people are willing to pay us a lot to make money for them."
I referred to the second investment manager I most admire, Andrew Lahde, in my post on Jesse Livermore, Boy Plunger's Pivotal Point Theory:
A hedge fund manager who made what is thought to be one of the biggest percentage profits of all time bowed out of the business on Friday with a fierce attack on the “idiots” running big banks who were willing to take the other side of his bets.
Andrew Lahde, founder of California’s Lahde Capital, used his farewell letter to investors to round on the US “aristocracy” able to pay for their children to gain a top-class education.
Mr Lahde, who has made tens of millions of dollars from his highly successful bets against the financial and property sectors during the past two years, also called for the legalisation of cannabis and said he was now dropping out to spend time with his money.
Saying he was “in this game for the money”, Mr Lahde went on to mock those who traded with him.
“The low-hanging fruit, ie idiots whose parents paid for prep school, Yale and then the Harvard MBA, was there for the taking.”
“These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns
and Lehman Brothers and all levels of our government.
“All of this behaviour supporting the aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”
Mr Lahde is one of the few hedge fund managers to have correctly predicted the subprime crisis. One of his funds made a return of 870 per cent last year. Money is now being returned to investors as the remaining business is shut down.
On Friday, Mr Lahde said he would no longer run other people’s money, preferring to concentrate on managing his own, and urged wealthy hedge fund managers and corporate chieftains to “throw the Blackberry away and enjoy life”.
“I will let others try to amass nine, 10 or 11 figure net worths,” he said.
“Meanwhile, their lives suck . . . What is the point? They will all be forgotten in 50 years anyway. Steve Ballmer [Microsoft chief executive], Steven Cohen [founder of hedge fund SAC Capital] and Larry Ellison [chief executive of Oracle] will all be forgotten.”
Why do I admire guys like Andrew Lahde and Monroe Trout? Because you probably never heard of them and more importantly, they understand that there's a lot more to life than making a lot of money. They understand Pete Peterson's meaning of enough and how hopelessly meaningless it is to make the Forbe's list of ultra wealthy.
If you've been following my blog closely, you'll notice I talk a lot about the importance of health. I've been feeling very good lately, and don't know if it's because of my recent CCSVI procedure or my vitamin D intake. I recently cut it down to 10,000 IUs a day from 30,000 IUs because I was losing too much weight and muscle mass, but I feel great and my blood tests were all normal. I also follow a common sense diet: no junk food whatsoever, fish, white meats and poultry, steamed broccoli and asparagus with lots of olive oil, limit my bread and pastas, drink lots of water (no soft drinks, juices or milk), and steer clear from sugar as much as possible, and no artificial sweeteners found in chewing gum and other products whatsoever (if you want fresh breath, brush your teeth, gargle alcohol free mouthwash or hydrogen peroxide and water without swallowing, and use a tongue cleaner like the one from Orabrush).
We all know our health is critically important but few people take measures to address it. Even I talk the talk but haven't been walking the walk. That's why today I was fed up of talking about going to the gym and decided to sign up at a gym near my house. Tonight, I went for a nice workout and it felt amazing (I'm a nut and started bench pressing like crazy -- definitely not 20 anymore!). It's a quiet and clean gym and I have a few friends that workout there so I can count on them if I need someone to spot me. I told the guy at the gym that for the longest time I was scared because I have MS, but now I'm fed up of procrastinating and decided I'll do whatever I can. He told me not to worry as there are women battling cancer who go to that gym and they often workout with no wigs. Also, his sister has MS for over 20 years and even though hers is very progressed, she's thinking of joining the gym too.
A lot of the battles you face with disabilities are all in your head. You can make all the excuses in the world for not doing something, but the biggest fear you have is fear itself. Last week, I was talking to a fixed income salesman from HSBC in Montreal that I admire. He suffered a spinal cord injury that left him partially paralyzed. Through intense rehabilitation, he was able to gain strength and walk using crutches. I like what he told me: "The minute I accepted my disability, I never looked back. It was truly liberating." He added: "I fundamentally believe that the disabled can do as good or better job that someone fully functional because they apply themselves harder."
I mention this because it's true but unfortunately too many organizations are lagging when it comes to hiring people with disabilities. It's one of my biggest pet peeves and not because I have MS. Forget me, I do not consider myself disabled -- far from it. I got enough fight in me to last several lifetimes. But I know that the unemployment rate for people with disabilities is abysmally high. And I blame governments for not doing enough to promote all inclusive work environments. I'm not just talking about the token person in a wheelchair, but a lot more disabled people at all organizational levels, even upper levels and board members. I would force all government organizations, including Crown corporations to publicly disclose the percentage of employees at all levels have self-identified as disabled people. It really isn't a big deal to hire someone with a disability and trust me, a few accommodations are all that's needed (when I did my contract at the Caisse, they put me in an office near the washrooms and allowed me to use the service elevator, and scheduled meetings at my bloc so I wouldn't have to walk all the way to the other end of the building. All little things I appreciated because I wasn't as strong as I am now).
That brings me to another topic, work. My friend Tom Naylor said it best, "work is a four-letter word". If you're lucky, your work is very stimulating, you're well compensated, and your work environment and the people you work with are all incredible. Unfortunately, it's rare to have it all. Either you'll have one or the other, but the sad fact is that most people don't have any of these success elements. Looking at my field, finance, there are really good people, but there are far too many weasels at all levels who consistently violate Ray Dalio's principle #11.
To be fair, it's not just finance. Any competitive field will have its share of unscrupulous weasels, but because finance is all about money, it has a disproportionate amount of weasels. What do these weasels have in common? Fragile egos. They're basically insecure, slimy politicians who will step on anyone who gets in their way. It's absolutely disgusting. I can write a book on stuff I've seen and experienced. In fact, I think I am going to write a book and try to sell the movie rights. Those of you who are unfamiliar with the snakes in finance should pick up Michael Lewis' classic, Liar's Poker. He talks all about those "Big Swinging Dicks" on Wall Street.
And that's another pet peeve of mine. Why don't pension funds and banks promote local talent? Why is Royal Bank's main trading floor in London, New York, then Toronto? Why is Bank of Montreal's main trading floor in Chicago? Why don't the large Canadian pension funds deal with local brokers, preferring instead to deal with the guys in London and New York? It's all bullshit! The large Canadian pension funds should insist that these firms open up offices in the main Canadian cities and train and promote local talent. They should publicly disclose what percentage of their brokerage activities goes to non-Canadian shops and start dealing more with Canadian brokers (not the guys from New York!!).
This field is all about egos and politics. It makes me sick but there are good people. There are exceptional people with the highest level of integrity and professionalism. They're rare but if you find a mentor in this field, count yourself extremely lucky (pension funds should have mentorship programs for their junior employees). I count myself extremely lucky to have worked with a few of these individuals, some as recently as my experience at the Caisse. Unbelievably smart and good people who have no malicious bone in their body and are willing to share their knowledge.
That's my philosophy in life. Maybe because my father and mother taught me to be good and help people. Of course, they also tell me I'm too trusting and naive and should be less open when talking with people in my personal and professional life. When I recently hooked up with my former boss at PSP Investments, Pierre Malo, we discussed process over performance, but we also spoke about life and friendship. Something he told me that stuck with me: "In this world, I can count on one hand my true close friends, people who would jump on a plane and fly half way across the world to come help me if I really needed them." (Pierre is one of the good guys I had the pleasure of working with and even though we don't always see eye to eye, I consider him a friend).
He's absolutely right. I know my family loves me unconditionally but when it comes to close friends, I can count them on one hand. Lots of people talk the talk, but few walk the walk. Unfortunately, that's the harsh reality of life and the older you get, the more you see who your true friends are because they stick with you through thick and thin. Not empty words but real concrete actions, especially when the going gets tough (that's when you realize who your true friends are. My dad calls this "egotistical friendships" where other people are your friends as long as they get something from you or you make them feel good.)
Let me wind this comment down by sharing some of my dreams and aspirations. A friend of mine got me hooked onto this stupid horoscope application which for some reason I now read religiously. Anyways, on Monday it read the following:
If there is something you have been longing to do, Taurus, hop to it! During this period of renewal, you have an excellent chance of succeeding at a new venture that is close to your heart. But if you choose to procrastinate instead - figuring that your goal can wait on this or that - then you may not have the advantages you have now. If you begin to take steps to make your dream a reality, the universe will provide you with all of the support and resources you require.
I've been giving a lot of thought on monetizing my blog. I put a lot of work in building this blog -- the links alone are worth keeping it on your bookmarks, especially if you work in asset management. I'm continuously adding to these links and updating them. I also try write insightful comments almost every night by analyzing articles and adding my thoughts.
Blogging seems easy but those who do it properly know it takes a lot of dedication and a lot of work. You have to find interesting topics, analyze articles, add comments, and often have to reread your own material to edit and correct typos. I love blogging and it shows. Instead of watching television, I prefer keeping my mind busy at night blogging.
After almost three years, I recently surpassed over 400,000 page views on my blog (my stats are all public on the bottom right-hand side). I'm grateful to other bloggers like Yves Smith at Naked Capitalism, Tyler Durden at Zero Hedge and Tadas Viskanta at Abnormal Returns who helped me gain visibility. I'm also grateful to Jack Dean of Pension Tsunami and Pierre Daillie at AdvisorAnalyst.com who also post my comments on their wonderful sites.
I want to continue blogging on Pension Pulse and take this blog to another level, exploring new options, including money management. I've set up a donation button at the top of my blog on the right-hand corner under the pig ( If you don't have a PayPal account, setup is a breeze. Just head over here to sign up and then come back when you're done). I would like my friends (and foes) to support me in this and other new ventures. It's time to dream big and start a new chapter in my life. If it flops, it flops, but at least I had the guts to try it.
What are some of the other ideas I'm toying with? I'm thinking of trading for a living, partnering up with some good people on a new venture, institutional sales jobs (but I'd really have to believe in the product I'm selling), offering niche research, and continuing doing contract work for pension funds. I'd also like to do more interviews with senior pension fund professionals from all over the world (not just Canada), as well as interviews with asset managers in public and private markets. I also want to set up an annual Pension Pulse dinner where I invite senior pension fund managers from all over the world, as well as asset managers from public and private markets, and moderate a discussion on topics of interest.
Turning 40 isn't the end of the world. It could be the beginning of something more meaningful in my life. I want to explore all my options but most of all I want to take control of my destiny, taking baby steps to reach my ultimate goal of setting up a fund where I manage money with a group of good people who I've known for a long time (and even some that I just recently met). There is lots of untapped talent in Canada that is being underutilized. And my dream is to give money back to worthy charities, many of which are listed on the bottom right-hand side of my blog.
So for my birthday on Tuesday, I would welcome your advice and donations to my blog. I'm not ashamed to publicly ask for your help in making this one of the best financial blogs on the net, along with a few others I've mentioned above and listed on my blog roll. As I stated above, no matter what, I'll continue blogging and take it up a notch, but I would appreciate your financial support. Finally, thank you for reading my long birthday rant. Is 40 the new 20? No, it's better!