In the past 15 years I’ve been professionally involved with many different styles of investing: futures trading, daytrading, value investing, arbitrage, private equity investing, etc. One common thread from every style of investing is the ever-present worry that pervades my consciousness whenever I part with money to make an investment. I’ve been a venture capitalist, an entrepreneur who has successfully started and sold three different businesses, I’ve traded for hedge funds, ran a fund of hedge funds, and daytraded for proprietary trading firms. I’ve bought and sold millions of shares of stocks, futures, debt deals, venture deals, etc. Additionally, being an entrepreneur and making payroll every month forces one to anticipate every possible scenario that could block you from making that payroll. Because if payroll is not paid out of your revenues, then it’s paid out of your pocket.
To some extent I regret every minute of the past 15 years. My first job in New York City was for HBO, interviewing prostitutes and drug dealers at three in the morning. How I went from that to trading and investing and everything that happened in between can fill ten books.
People always say, “Oh, I have no regrets.” That’s bullshit. Working at HBO was fun. Investing is no fun at all. My brain is scarred from the non-stop worry. I can write a book about insomnia. To be a good investor (not even a super successful one. Merely an investor who does not lose money) requires you to attempt to anticipate every possible event you possibly can. Everything from macro events (how will fears of nuclear terrorism effect my portfolio) to micro events (is the company or hedge fund I’m investing in run by good people? Is it a fraud? How are cash flows this year?). When daytrading there’s an additional factor to consider. You have to also know your own psychology and physiology. Did you get enough sleep? Did you have a fight with your girlfriend and now you’re going to take it out on the market? Are you eating well and staying in shape? Everything counts in investing and over the past 15 years I’ve seen every way in which this market is rigged, manipulated, and scammed. But ultimately, good companies win out in the end, and the companies that also anticipate for world-changing events, will end up doing better than the companies that stagnate and let doom envelope them.
After I started and sold my first company and I began trading, I used software I wrote to model the markets. I started trading for a well known hedge fund manager. In addition to trading I also began writing for thestreet.com and The Financial Times. Many of my specific trading techniques at that time ended up in my first book, “Trade Like a Hedge Fund”.
At that point I decided to make a study of other investors, in particular, the investors that were infinitely more successful than me. I read every letter Warren Buffett ever wrote. Not just the publicly available Berkshire Hathaway annual letters but the harder to find, unpublished letters he wrote to his hedge fund investors from 1957-1969 before he began to focus fulltime on Berkshire. I discovered that Buffett was a lot more active trader than people thought and his bread and butter wasn’t in fact buying and holding value stocks forever. The result of this study was the book, “Trade Like Warren Buffett” and was the only book on Buffett ever to explore his non-value investing styles. My further work on studying the super investors led to stockpickr.com, a site my business partner and I built in 2006, and then subsequently sold to thestreet.com in 2007.
When I started my fund of hedge funds I became interested in all of the ways people can generate returns on their money other than simply investing in stocks. Many hedge funds had creative and unusual ways to make money. The result of that study was my third book, “Supercash”.
From a macro perspective, I also liked studying the demographic tidal waves that ultimately will shape the investments we make for generations to come: rising obesity, China, the rise of the Internet and issues with computer security, an aging baby boomer population, etc. I’m convinced Buffett is a demographic investor first, value investor a distant second and I wanted to anticipate what stocks he would be interested in for each demographic trend. The result of this study was my fourth book, “The Forever Portfolio” plus many of the columns I write today for WSJ.com.
On the one hand I could be considered a dilettante of investing. I will always be a student however and always curious about new, and hopefully better, ways to make money and serve my clients. With the media constantly obsessing every day on the “new new thing” that could cause the world’s end, I started studying the ways in which investors could construct their portfolios to anticipate cataclysmic events before they occur. This combined with a trading approach that will work when the actual events or crises happen will generate solid returns during the trials ahead of us.
The driving force, though, behind every style of investing is an ability to worry combined with the ability to rationally focus that worry into decisions that will either make money or help you avoid losing money. Remember that the two most important rules according to Warren Buffett are:
“Rule No. 1 – Don’t lose money. Rule No. 2 – Don’t forget Rule No. 1.”