Skills That Separate You as an Investment Manager: Decisiveness

In a recent series of posts, I have sought to complement my advice on how to become a research analyst by dissecting the skills that can separate you from the crowd once you have landed a coveted research analyst position. Having hired research analyst interns, research analysts, a portfolio manager, and even my own successor when I retired from investment management in 2005, I have gained a fair amount of knowledge about the skills that can deliver a competitive advantage as you enter the investment management arena. My prior posts have examined the importance of intuition,creativity, and introspection.

Some of the skills that you need to succeed as a research analyst are obvious: a love for — and vast knowledge of — economics, business, and finance; a strong drive; confidence and persistence; and so forth. You probably already recognize these skills as necessary since they permeate the mythology of the investment business. Yet many of the skills needed for a successful investment management career are not taught in business schools. Neither are these skills discussed in the business press. And they are not well understood by most firms doing the hiring.

If you would like to separate yourself from the vast crowd of highly motivated and highly intelligent candidates seeking to succeed in the investment business, one of the most important skills you'll need to hone is decisiveness.

Decisiveness

I often say that the difference between a research analyst and a portfolio manager is that an analyst aims a gun, whereas the burden of responsibility for firing the gun falls on the manager. This difference underscores not only the grave stresses that can come with responsibility, but also the need for decisiveness in investment management.

I have worked with analysts whose number of years in the investment business were greater than mine as a portfolio manager. Yet when I would ask these analysts for their opinion about a business and a prospective investment in that business — “Would you buy at the current price?” — they would answer the question with loads more data. While this response was sometimes helpful, it was, I think, an example of that most dreaded of analyst ailments: analysis paralysis. Their lack of decisiveness was shrouded in a cloak of data.

Remedy

I think analysis paralysis happens for several reasons. For starters, analysts and portfolio managers typically have yet to realize or come to grips with one of the great lessons of investing: there is no such thing as a future fact. By definition, facts are things that have occurred in the past, but investment results unfold in the future. So, again, by definition, investment decisions are always leaps of faith. No fact can make a decision for you. So firstly, you must come to grips with this reality.

Second, I have found that underneath the carefully constructed veneer of analytical rigor and grace that many analysts wear is a person out of touch with his or her emotional state. Meditation can provide valuable insights into one’s emotional state, as well as the underlying causes of emotional states.

Third, if you catch yourself in analysis paralysis, try making decisions of less consequence under uncertainty as practice. Start with very small decisions and work your way up. For example, start by being deliberate and conscious about what apples to buy at the grocery store, then eventually advance to decisions with much higher stakes.

Application

When I retired from money management, I had the unique privilege of hiring my successor. He and I shared an office for several months as I got him acquainted with the many choices I had made during my tenure, as well as my models. As you might expect, he asked numerous questions about my process, my relationships, and my choices.

All of the questions were of the knowledge-seeking sort until one day, in early August 2005, he asked me a very different type of question (paraphrased): “Why on God’s green earth are you doing that when you could be doing this?” I flashed a big smile and my successor immediately apologized, “I’m sorry, that was out of line.” I replied: “Quite the contrary, this is the very moment I have been waiting for as the fund is now yours.” The transition was sealed when my successor was finally willing and able to question my judgment.

With that simple act of decisiveness, the responsibility was his and I was able to quietly retire less than three weeks later.

If you liked this post, don't forget to subscribe to the Enterprising Investor.

All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author's employer.

Photo credit: ©iStockphoto.com/CSA-Archive