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Monthly Archives: April 2015

A Day in Your Life Well Spent – Event Recap April 10, 2015

14th April, 2015 · CFAMNEB · Leave a comment

By Graham Acheson, Wells Fargo. Graham is a Level III Candidate and Society Member.

CFAMN members have learned about a variety of different industry specializations at “A Day in the Life” events. On Friday, we were introduced to CFA Charterholders Bruce Langer and Dan Aronson of EPIQ Partners, LLC. Their topic was a new one for this series: Entrepreneurship. This idea, a dream for many Americans, also stimulates fear in some of the most motivated individuals. With their hour and a half, they managed to bring to life many of their experiences.

As they begin, “If we can do it, anyone can do it” seems fitting for a series on starting your own business. However, this is not a motivational speech. This is truth, a statement on their abilities in comparison to those in the audience. More importantly, Dan asks us to be honest with ourselves, “Is this for you?” And if you just answered “yes,” the next step is to see a psychiatrist. Really. They did. Bruce and Dan met with a professional, not to see if they were crazy for considering this endeavor, but to understand each other and create a foundation for a hopefully long partnership.

Forming EPIQ on values that they both agree on, Bruce says that he is happier as a business owner, and without having met him in the past, looks happier too. This exuberance comes from a lifestyle prepared long in advance. The business was overcapitalized, answering a question on fear and uncertainty posed from the audience. Two and a half years in, much of the initial capital still remains. Keeping their costs down was vital for a duo that prides itself on people, not perception. The partnership is at the core. Both agree that they, together, are the most important part of the business. In an upcoming event, they plan to rent a car and drive a couple of clients down to the Berkshire annual meeting. At a larger firm, this event may be overlooked or even considered unnecessary, but as their own bosses, they decide what adds value to their clients.

Their current situation is, as they state, “two men and a Bloomberg,” but they have found a niche. Working on what they add and outsourcing the rest creates a brand their clients can understand. As a small business, inefficiencies still exist. Learning to live with them, and spending a day setting up the complicated business phone system, will get you a long way. A sense of slow and steady comes to mind. With a tone that heeds warning not to overextend yourselves, Dan mentions that in their 600 square foot office, the conference room is the break room is the front desk. In answering another question, think strategy, not simply a plan. Being patient and accountable, they never had to consider supporting a failing business. The thought of continuing just to make it work was never required.

So, if you were looking to make this leap, hopefully Dan and Bruce detailed the pros and cons of forming your own registered investment advisory firm. If you were there for some entertainment, anecdotes of the struggling professionals with three kids each satisfied. And if you showed up just to get a free lunch, the CFA society always provide it. Whatever the reason for attending, the A Day in the Life series truly betters our membership. When you have a chance, check one out, there is a topic for everyone and it would be a day in your life well spent.

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Posted in Hot Topic Commentary, Local Charterholders | Tags: A Day in the Life, EPIQ Partners, Starting Your Own Firm |

How a Famed Mathematician Can Make You a Better Investor

7th April, 2015 · Adam Schwab, CFA, CFP · Leave a comment
Adam Schwab, CFA, CFP

In the pursuit of building an investment education, I have found most insightful investment principles are often discovered in other disciplines. Investment books can be great, but most just rehash the same superficial material. True investment insight flows from deep principles that originated from other academic and professional fields.

Richard Hamming was a world renowned mathematician who pioneered research in computing and physics. He worked at the famed Bell Labs, helped design atomic bombs at Los Alamos, and advocated the redesign of mathematics education. Not only were his ideas valuable in computer science and physics, they clearly crossover into the investment world.

So what insights can Hamming share with investors that will enable a successful investment strategy?

Two foundational articles provide great insights for both beginning and sophisticated investors: “You and Your Research” and “A Stroke of Genius in Striving for Greatness in All You Do”. These articles provide a solid blueprint for constructing an investment education. Here are four ideas that readers can implement today.

“Great scientists have independent thoughts…and have the courage to pursue them.”

Hamming talked about the courage young scientists had to pursue new thoughts, instead of sticking with traditional methods. Great investors follow the same path. Independent thought is the linchpin for successful investing. Unaware to most investors, the outside influences we subconsciously entertain degrade the rational and logical mind necessary for investment success.

Great investing ideas often involve courage. The best opportunities are likely out of favor and take significant diligence to understand. Independence provides the clarity to see ideas in an unbiased light.

Investors are constantly being told what to buy, what to sell, and what to worry about. Sophisticated investors are extremely selective in what ideas and opinions they let through their filter. Investing doesn’t have to be a solo act, but each investor needs to build their own foundation.

Solution: My preferred method is to learn from other experts who have exhibited independence throughout their careers. Borrow ideas to fit your situation and mindset, rather than reinventing everything yourself. Some of my favorite examples are Richard Feynman, Teddy Roosevelt, and John Boyd.

“Knowledge and productivity are like compound interest. The more you know, the more you learn; the more you learn, the more you can do; the more you can do, the more the opportunity – it is very much like compound interest…One person who manages day in and day out to get in one more hour of thinking will be tremendously more productive over a lifetime.”

Investing requires diligent and consistent effort to build the competence to judge ideas and have the courage to stick with investments when times get tough. Investors have a nasty habit of interrupting compound growth to pursue hot ideas with a catchy story. Investor’s self-sabotage causes more problems than any geopolitical crisis or recession ever will.

Solution: Leverage great investors. My top 3 are Howard Marks, Warren Buffett, and James Montier. Build off their successes by reading one of their letters daily. Consistent effort in just a short time will yield tremendous results.

“You have to neglect things if you intend to get what you want done. There is no question about this.”

Not only is this quote practical for everyday life, it is also necessary for investors. There is too much information and distractions that bombard investors. To gain the necessary investment expertise and analytical edge, all superficial noise and wasted activity must be filtered away from investor’s attention. Whether it’s endless market commentary or concerns coming out of Europe, most of what investors read and hear has no useful purpose.

Solution: Make a conscious choice to go on an information/activity diet. Free up time that can be committed to building a particular investment skill. Abandon the thought of trying to conquer everything at once. Read a 10-K/Annual Report in your favorite industry each day and watch how a singular focus can deliver rapid investment growth.

“The people who do great work with less ability but who are committed to it, get more done that those who have great skill and dabble in it, who work during the day and go home and do other things and come back and work the next day. They don’t have the deep commitment that is apparently necessary for really first class work.”

Hamming’s insight is a great reminder to investors that investing is long term commitment. Just as great authors commit to their craft, great investors need to apply consistent effort in building their mental toolkit.

Solution: Decide how passionate and committed you are to improving your investment ability. The real test will occur when boredom & repetition sets in and you face a choice: keep building your skill or give up and see your progress unwind.

Adam Schwab, CFA, CPA is a portfolio manager at Elgethun Capital Management

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Posted in Hot Topic Commentary, Local Charterholders | Tags: Howard Marks, Investor, James Montier, leverage, warren buffet |

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