Issue #25. Trying something new. Going with one topic, but going a little deeper. You’re welcome to let me know what you think. As always, keen to spew out what I’ve been reading, learning, and compressing. But first, a quick quote from Howard Marks:
There are old investors, and there are bold investors, but there are no old bold investors.
Here’s the format of today’s email:
Part 1: Age and Experience
Part 2: Feedback
Part 3: Under the Spotlight: Elizabeth Gaines
Part 4: Bonus Quirky Content - Something to Read, Watch, and Listen
Age and Experience
Buffett and Munger are 90 and 97 respectively, and still running a $600b+ public company. George Soros is 90 and still as active. Jeremy Grantham is 82 and still at GMO. Paul Singer is Co-CEO of Elliott Management at 76. Howard Marks is 75. Seth Klarman is 64. I could go on. But why are so many successful investors old? Is it a due to skill improvements over time? Is it because of compounding and them just sticking around? Is this just survivorship bias?
Do Older Investors Make Better Investment Decisions? [Link]
we find that older and experienced investors follow “rules of thumb” that reflect greater investment knowledge. But older investors also exhibit worse investment skill, especially if they are less educated, earn lower income, and belong to minority racial/ethnic groups. Overall, the adverse effects of cognitive aging dominate: Investors with greater cognitive decline earn 3% lower risk-adjusted annual returns, and the performance differential is 5% among investors who hold larger portfolios.
And a bit more detail as to what older and more experienced investors styles and portfolios look like:
older and more experienced investors hold less risky portfolios, exhibit stronger preference for diversification, trade less frequently, exhibit greater propensity for year-end tax-loss selling, and exhibit weaker behavioral biases such as the disposition effect and familiarity bias. Thus, their choices reflect greater knowledge about investing. But consistent with the cognitive aging hypothesis, we also find that older investors have worse investment skill, where the skill deteriorates sharply around the age of 70.
Old Age and the Decline in Financial Literacy [Link]
The summary of this paper is an absolute doozy. A double whammy for older people. I’ve made a meme that kinda, maybe, almost sums up the paper:
Age and Investing Skills [Link]
Some great thoughts around getting old in investing. Particularly as the author notes that the older people get, the more religious they get in certain beliefs and are often prone to some overconfidence. Which might potentially stem from the fact that older investors rarely admit that they do not know what is going on. His advice?
My advice (mainly to myself) would be as follows in order not to fall into the age trap:
Don’t turn a certain investment style into a Quasi religion
Admit that you don’t understand current markets
Don’t be constantly afraid but find ways to adapt
Never say it is too late for something new and don’t be afraid of mistakes
Maybe let some younger guys manage part of your portfolio in order to benefit from their “lack of knowledge”
Is Experience All It Is Cracked Up to Be? [Link]
Robert Vinall of RV Capital makes a good argument that investors may feel so comfortable with their current style, that they refuse to change and adapt.
there is an advantage to experience. When the nature of the market does change, it should, at least in theory, be easier for the investor that has lived through different types of market to adapt than for the investor who has only experienced one type. The younger investor suddenly finds themselves in the position of the older investor without the benefit of having experienced a change in the market before.
In practice, however, few investors have sustained multidecade success. This may not solely be down to how difficult it is. It could also be that the rewards to the stellar performer are so great in one era that they lose interest in competing in the next one when they realise that their skills are no longer as finely attuned to the market.
This relates pretty well to when I wrote about investors who changed. Buffett, one of the greatest investors of all time, changed his style from Cigar Butts to growth. Especially as your asset base changes, things have to change. Certain opportunities won’t make a material impact that would have previously. Your risk tolerance might change. Investing is a brutal game. And will eat you alive if you let it.
In Marks’ 1996 letter, Will It Be Different This Time? he highlights how his experience (due to his age) has affected his investment style:
I am a product of my experience. Many of us were raised by parents whose views were heavily influenced by living through the Depression. Likewise, I was baptized under fire during my first five years in the investment industry, when the shares of the best companies in America -- the "nifty-fifty" -- dropped 70% to 90% in the early 1970s and then the entire market lost roughly half its value in 1973-74. You have to be more than forty-five years old to have been in the business during that last real bear market in 1973-74. I've heard it said that today "everyone over forty is terrified by the market, but most of the people running money are under forty."
Maybe older investors are better because, for lack of a better term, they’ve seen some shit. I’m too young to remember the impact of the GFC. I think anyone born after 1990 has only really seen stonks only go up. Sure, there was a blip in 2020, snapped back and then some! I don’t know, I get a little nervous when things move for too long in one direction and others are too engrossed to imagine an alternate reality. When you base your expectations only on what you see, you blind yourself to the possibilities of a new reality. And a final piece from Marks:
Rule number one: most things will prove to be cyclical.
Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.
Summary on Age in Investing
Age is a blessing and a curse in investing. You let compounding work its magic. You accumulate more skills over time. But you also might become a crusty old bastard who refuses to keep up with the times. As with a lot of things in investing, it’s a double-edged sword. Stick to your guns, yet accept that things change. You do you I guess.
Just a short section relating to last weeks issue where I asked for feedback. My takeaways:
More focus on Asia-Pacific (Hell yeah I can get behind that)
Go into the weeds. Look for older/obscure profiles of people and businesses.
Give a bull and bear take. Study success but also failures.
Leverage the network and find people that aren't covered by traditional media and highlight their efforts.
One interesting comment I got about what they would do differently:
share […] a podcast affiliated to the content of published edition, so that people who may not be much interested in reading the whole lot of content can get a synopsis of the whole edition by listening to it.
Now, I’m more than happy to do this. Small problem. No way in hell I can get it done by the time of publishing. I’m constantly editing and fixing the newsletter right up until sending. Could I do it with a week’s lag? For sure. With high-quality audio and effort, yes! But I would make it more conversational. And wouldn’t be professionally edited with intros and outros like Compounding Curiosity will be. CC will be releasing guest episodes from July 1st too FYI. Let me know if you think it would still be useful with a weeks lag.
Also, congrats to Louis, Aviral, and Tejas for winning a book thanks to their detailed and helpful feedback! If you still want to give feedback to help make CbK better, you can do it here.
Under the Spotlight: Elizabeth Gaines
Each week I provide a little spotlight on an investor or operator I admire.
Elizabeth Gaines is this weeks focus, in a nutshell:
Born in Derby in 1963, but spent her early years in Halls Creek, a town with around 3,000 people. “In most of my classes, I was probably the only non-Aboriginal child, as well as being the daughter of the headmaster — which is always very popular”.
I can’t stress this enough, Halls Creek is legit so far out the way it’s not funny. It’s the only sizeable town for 600 km on the Great Northern Highway, and during the wet season, Halls Creek is often cut off due to flooding.
Gaines would move around much of regional Western Australia as her father's headmaster postings changed before the family settled in the Perth Hills. For high school, she was offered a musical scholarship to Perth Modern (former PM Bob Hawke is a notable alumnus). Perth Modern is no joke to get into. Super selective. I’d have had more chance of winning the lotto than attending there.
At 24, flew to Istanbul on a one-way ticket and backpacking through Europe. Eventually ended up in London where she spent five years in investment banking at Kleinwort Benson. “I kept turning up every Monday and no one told me to leave, so I continued to turn up until they offered me a permanent job”
She later returned to Perth and in 1997 she landed a role as finance general manager with Heytesbury – the Holmes à Court family company, and would then take over as CEO in 2001. Would eventually give up that CEO role and move to London to support her partner. Would later take on the role of CFO and CEO of travel company HelloWorld.
In 2013 Gaines joined the board of Fortescue (FMG) and was the company's first female non-executive director. She became CFO of FMG in Feb 2017 and would be CEO only a year later. When she started as CEO, FMG’s share price was ~$5. Today it’s over $20. I know three years don’t make a CEO, but not a bad return for shareholders.
I think having the attitude that you say yes more often than you say no, can actually lead to a really rewarding career.
I think it does boil down to taking those chances taking those risks every now and then and actually putting yourself in positions where you do feel uncomfortable and you put yourself out there. […] You get over that feeling of being that impostor then actually you feel actually i can do that and i know i can do it
Reframe Your Future [27 mins]
Full honesty, I wouldn’t watch the above video. I’ve done the 30-minute grind and pulled the useful parts, but overall better uses for your time I reckon :)
Communication is so important. You have to make the tough decisions but if you take people on the journey and you actually engage with them and you be transparent and you be open and you share with them the information as you receive it, […] the benefits of that have been enormous.
Gaines is a huge proponent of culture, and talks about it a fair bit:
whilst we've had a strong culture for 17 years now we can't ever become complacent and we can't assume that that culture will nurture itself we actually have to be really disciplined
When it comes to leadership, it's finding that sort of organization culture that really aligns with your own views and your own moral standards.
Major trends for the next 5,10,15 years at FMG?
Overall? Reaching net-zero operational emissions. Achieving greater diversity.
5 years: Installing large-scale solar energy across operations that'll help reduce emissions from their stationary energy by 25 to 30 per cent.
10 years: Diesel-free in their mobile fleet. Doesn’t have the answer for this currently though.
15 years: Hydrogen and hydrogen technology, and developing the export market for that.
and lastly, her three keys for success:
Be curious: Read more broadly don't just focus on one industry.
Take control of your own career: Don’t wait for someone or your company to suggest further study or options. Do it yourself. Push the envelope. “Just sitting and waiting for it to happen, I don't think it's the right path.”
Say yes more often than no: Get outta ya comfort zone and try new things.
Love to finish with this:
I'm not scared by change — I think some people find change very confronting, and it certainly doesn't mean that I haven't been confronted by change at various times.
But how you respond to change I think is critical.
Unfortunately, Elizabeth hasn’t done any podcasts yet, and who knows, hopefully, I can change that!
Bonus Quirky Content
Something to read: Why ambitious people have (unrelated) hobbies [Link]
A gem from Ryan Holiday. Although does make me worry I have too many unrelated hobbies and no singular ambition…
Seneca — himself a busy political advisor and writer — spoke of how difficult it is for ambitious, career-focused people to take time off to pursue other interests because they are worried about falling behind in their world. The same people who are willing to take great risks to advance their careers will not risk anything for the sake of personal happiness or even mental balance (even if the latter would indirectly help the former).
Something to watch: Miura - The Quest for the Perfect Golf Club [13 mins]
Golf focused, but also a decent look into a slice of Japanese manufacturing and some philosophy.
Miura-San really taught me the value of putting your heart and soul into something to make it the best it can possibly be. And there's no benefit to cutting corners when it comes to mastering what you've set out to do, because at the end of the day the only one you have to answer to is yourself.
Something to listen to: Carson Block of Muddy Waters on Masters in Business [Link] [Apple Link]
Fair warning, Carson’s audio quality isn’t great. But if you can get past that, pretty decent listen. Some great insights on fraud, particularly fraud in China, and the how and why behind it. Backed up with some super interesting stories.
The difference between China and all of these other basket case EMs and FMs is, in China, they didn’t steal so much that they couldn’t build the road, like they understood the right level of corruption there.
My favourite part was Barry going full stunned mullet at the thought of there being an acceptable amount of corruption:
Barry Ritholtz: Wait, wait, let me interrupt you right here. An unacceptable — is the guy stealing an unacceptable amount of money in China? Is there an acceptable amount of money management can steal?
Carson Block: Yeah, I mean, this — this is a question that I remember my entrepreneur friends and I used to occasionally when we get together to numb ourselves, we used to discuss. And so, the question was, Okay, what do you think the average amount of money stolen is when the capital was provided by outside financing, whether it’s the government, a loan or equity investment?
In the consensus, like to a person, was if we’re being kind, 20 percent.
Rabbit hole/resource to dive into: Hedge Fund Presentations [Link]
Incredible resource. Presentations on Long and Short ideas from funds like Pershing Square, Elliott Management, Third Point, and plenty more. Wish there were a few more recent ones (considering recent events), but is a great rabbit hole nonetheless!
Final thought for the week:
Until next week, have a good one!
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