Monday, November 11, 2013

Who are you talking to?

There is this stereotype image of a value investor being a lone wolf figure, holed up in some library poring over annual reports feverishly looking for investments.  Said investor simply reads and generates profits for themselves or their fund.  If all it took was a quiet location and lots of reading to be a successful investor the world would be overrun by rich librarians.  Fortunately, or unfortunately if you're a librarian, that's not the case.

I went to a local company's annual meeting recently, and the number of connections I made coming out of that meeting have had me thinking about the role networking plays in investing.

There's an interesting evolution in life, the young think they have everything figured out and have no need to listen to experience of the older generation.  They then repeat the same mistakes, learn the same lessons and then try to pass them down to the next generation with the same results.  It seems futile, but it's the course of life.  I remember being in college and receiving advice from mentors and bosses saying that networking and building connections is what mattered, not necessarily book knowledge.  I of course ignored the advice until I learned it on my own.  Now I'm sharing the same advice with younger people who ask, and I would imagine they're ignoring it much like I did.

Think about any given topic in investing, there are probably thousands of investors with experience investing in that space, maybe a few dozen will write blog posts about it, and maybe one will write a book.  Of the thousands of varied experiences the only remembered in a decade will be the ones in the book, or potentially a few blog posts.  Yet the experiences not recorded didn't vanish, and in many cases they might be better examples, and better explain the pitfalls and potential than what is recorded.  The verbal history isn't visible while the literary history is, what is visible is what's remembered.

I feel like there are certain foundational books to creating an investment style, the books explain important foundational concepts, but beyond that for an investor to grow they need to start talking to other investors.  It isn't enough to just read a few books, sit in a room reading 10-Ks and invest.  The investor who does this repeats the mistakes of earlier generations.

When an author writes a book they write it for a wide audience, they write generically.  When I talk to someone on the phone (or email) and ask for advice I can share my situation and the person giving advice can give specific advice tailored to my exact situation.  Additionally a conversation takes much less time than reading a book or a blog post, and can yield much more information.

So how does networking with other investors help?  First and foremost you get to meet interesting people.  If you put yourself out there as someone who wants to learn and meet new people you will start to make a number of connections quickly.  Secondly you might learn a lot about something that you can't learn anywhere else, especially online.  There is so much history that's stored up within people and will never be published to the world.  If you can make the connections with these people these stories can be unlocked.  Don't discount verbal history simply because it's unseen.

Another value investor stereotype that needs to be shattered is that all management is promotional and slimy.  If you're investing in junior miners in Canada, or Nevada development stage companies this might be true, but I've found otherwise.  Of course management is going to talk their book, I'm sure you'd talk your book about your portfolio if given the chance as well.  But most likely you're not an expert in the field that the CEO works in.  I've had short conversations with executives where I've quickly learned the important drivers and a number of considerations from a management perspective that I'd never seen anywhere else.

In the more than three years I've been writing this blog I've probably made about $150 in consideration directly from the blog.  What I have made is a great network of friends and investors I can talk to about potential investments, business opportunities, and general career and life advice.  If it weren't for reaching out and being willing to talk I would never have the network I have today.

The bottom line is that to grow as an investor you need to be talking to other investors, other business people, and people who work at companies you research and invest in.  These people will teach you, encourage you, and challenge you in a way that you can't get yourself.  In turn you might teach them, challenge them, and encourage them.  In the spirit of this post I leave you with a small excerpt of prose:

"No man is an island,
Entire of itself,
Every man is a piece of the continent,
A part of the main."

-John Donne

4 comments:

  1. Great thoughts. Being worried about the influence a company's management may have on you is a great defense against being influenced. I think sometimes investors succumb to following others into an idea without doing their own research, i.e. following Watsa into Blackberry or Ackman into JCP, etc. I would lean to learning about process from others, but not so much ideas on investments.

    Having spent 2 years mysefl holed up in a library/hole in the wall office researching investments, I do think doing your own research is the best way to learn, but connecting with others provides something that is necessary to keep your sanity....

    ReplyDelete
  2. I couldn't agree more. Networking is key especially when it comes to investing. You never know what kind of interesting investors that you are talking to.

    ReplyDelete
  3. Definitely right answer to all investors, not only for value-players. Thanks.

    ReplyDelete
  4. I think the advent of the internet and investor message boards has facilitated this communication across geographies and has improved my investing. I also think meeting folks in person has been great also. What this improvement in communications has facilitated the refinement of many ideas that were once thought about alone or in very small groups. Before the internet, I did not know of any value investors in Rochester, NY to discuss investments with but now it doesn't make any difference where the person is as I can share and receive feedback on my ideas from folks literally around the world.

    Packer

    ReplyDelete