full time private investors who left their day job

[bmichaud]

I mean, not to feed what I imagine is an ego that's tough to control after such phenomenal success, but I look at your track record and brilliance and see a recipe for becoming a self made billionaire.

 

Maybe I would have an ego about it if I could actually analyze the companies myself, but I can't.  I have very little confidence that I can continue these results.

 

The fact that you say you cannot analyze companies yourself demonstrates the size of your ego. You know BAC just as well as anyone on the planet.

 

It's the act of screening the universe for the best opportunities that you are self-admittedly not brilliant at doing. Thus you hedge against that weakness by using other fund managers as a "screen". Then your analytical abilities take over from there.

 

So again, I do not understand why you would doubt these abilities all of a sudden after years of proving them out. It's not like you got lucky for a number of years and are "going out on top" as oddball says you are. It's like Buffett calling it quits in 1969 and never managing money again b/c he thought it got lucky for 20 years.

 

Not only should you continue managing your own money, you should set up your affairs so that you could manage other people's money with the least effort possible.

 

Again, it's like:

 

- Michael Jordan walking away for minor league baseball

- Michael Jordan walking away after his final championship simply b/c the Bulls' owners did not want to keep everyone on

- Tiger Woods walking away from Jack's record in pursuit of becoming a Navy Seal

- my pole vault friend who did not attept to vault professionally after being told by many professionals that he's the fastest guy they've ever seen on the runway

 

etc.... etc....

[ERICOPOLY]

I mean, not to feed what I imagine is an ego that's tough to control after such phenomenal success, but I look at your track record and brilliance and see a recipe for becoming a self made billionaire.

 

Maybe I would have an ego about it if I could actually analyze the companies myself, but I can't.  I have very little confidence that I can continue these results.

 

The fact that you say you cannot analyze companies yourself demonstrates the size of your ego. You know BAC just as well as anyone on the planet.

 

It's the act of screening the universe for the best opportunities that you are self-admittedly not brilliant at doing. Thus you hedge against that weakness by using other fund managers as a "screen". Then your analytical abilities take over from there.

 

So again, I do not understand why you would doubt these abilities all of a sudden after years of proving them out. It's not like you got lucky for a number of years and are "going out on top" as oddball says you are. It's like Buffett calling it quits in 1969 and never managing money again b/c he thought it got lucky for 20 years.

 

Not only should you continue managing your own money, you should set up your affairs so that you could manage other people's money with the least effort possible.

 

Again, it's like:

 

- Michael Jordan walking away for minor league baseball

- Michael Jordan walking away after his final championship simply b/c the Bulls' owners did not want to keep everyone on

- Tiger Woods walking away from Jack's record in pursuit of becoming a Navy Seal

- my pole vault friend who did not attept to vault professionally after being told by many professionals that he's the fastest guy they've ever seen on the runway

 

etc.... etc....

 

Perhaps I'm "low T".  I am turning 41 soon after all.

[Kraven]

I mean, not to feed what I imagine is an ego that's tough to control after such phenomenal success, but I look at your track record and brilliance and see a recipe for becoming a self made billionaire.

 

Maybe I would have an ego about it if I could actually analyze the companies myself, but I can't.  I have very little confidence that I can continue these results.

 

Eric,

 

While others are in awe of your options trading strategies I am in awe that you rode an incredible wave, and had the ability to get out on top.  Many people who have a run like you do fuel the urge to get "just a little more".  It usually doesn't end well, you have done well for yourself and your family.  Congratulations!

 

+1  I would completely agree with Oddball here.  You know yourself well.  I like the self deprecating modest approach.  You are obviously very smart and very good at what you do.  It reminds me of this scene from The Joy Luck Club (yes, I have a wife).  It's about 1 min 45 seconds in. 

 

[HJ]

 

It reminds me of this scene from The Joy Luck Club (yes, I have a wife).  It's about 1 min 45 seconds in. 

 

Kraven,  A Chinese one at that?  lol!

[SharperDingaan]

Couple of things we've learnt over the years, which may be of interest.

 

For us it has always been about having fun owning & running a business; subject to the business having comparative advantage in our chosen market sector, & not being a public entity. We invest to raise the funds to buy into those businesses, & along the way - we learn how to control risks & get ourselves out of trouble. Money is our servant, & we never want to get to the point where the business becomes too big - & starts controlling us; if we want big, we could simply buy/sell equities.

 

It means we are constantly reinventing, there is no time-limit to our business life, & there is enhanced anti-fragility. It also means that you are always working with partners; sometimes good, sometimes not so much, but everyday a new experience. Marry the creativity of reinvention, with mastery of finance, & good things are almost a given.

 

Case in point: While some way from retirement I have chosen to learn the beer business by becoming a Master Brewer in my spare time. Takes 5 years to become a Master Brewer, & along the way it will be necessary to spend some time in a brew house, time learning beer sales, time doing a thesis in beer, & time investing in a brewery or two; not the most simple things to do, but not impossible either.

 

The end result will most likely be the part-time teaching of brewing, & the business of brewing, at a brew-school; partnership interests in various local brew-pubs &/or craft breweries, & investment interests in bigger breweries via time limited Brew Master, or MD contracts. No retirement in any of it, & the fun in business pretty much assured ....

 

Different strokes, but think outside the box.

 

SD

 

 

 

[SwedishValue]

I have had thoughts around this subject matter for a long time now, and am currently only working with my investments. I used to play poker for a living, but couldn't cope with it for several reasons and quit several years ago. I have a Master's degree in accounting from a top University and around 1.4 Million USD in my investment portfolio. I have averaged > 40% yearly the last five years with very little leverage, and feel pretty confident in my abilities. I'm in my mid-twenties and do not have a partner.

 

What I really would like to do is to form a partnership Buffett style and manage other people's money along with my own, but Swedish legislation doesn't allow that. I am an introvert person, but at times I feel that the lack of human contact gets to me. I like the thought of doing philantropy at a big scale, so for me it has become sort of a moral obligation to continue investing and focusing on it full time seeing that there is so much money to be made from compounding 50 years down the road.

 

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like.

 

Also. Does anyone here know how hard it would be for someone from a socialist country such as Sweden to move to the states and set up an investment partnership?  ;)

[zarley]

On Friday I just put in my notice to work that I would be leaving the company.  My personal targets were always to leave once I got to ~$5M in AUM (reached last year, around $6.5M now, but some of that is mine).

 

I basically figure(d) if I could make $40-50k off of the RIA business, then I could live modestly and my portfolio would be untouched and it could grow for the future without fear of withdrawal rates, etc.  Of course in general I expect the business to grow in time at a good clip but that is all upside.

 

Some Thoughts:

1) I do worry if additional work doesn't help returns - I think it will, but I am putting some things in place to firewall "activity" and make sure my incremental time is spent reading.

2) My goals are not to do this because it's entrepreneurial at all... I like the challenge, I enjoy the fact that it is mine, no one else is responsible for my record.  I also most enjoy the freedom of time / location that it affords me. 

3) I believe I have a decent # of potential clients who have hesitated to sign up with someone who is "part time" over the years, so I think a few new clients may be in the making (in addition to folks at my work who weren't aware of what I do, and now will be).

 

Just a few thoughts for me.  We'll see in a year of actually doing this exclusively what additional lessons or insights I will have.

 

Ben

 

Congrats Ben.  I've followed boards you've been active on for quite a while and have always been impressed by the quality of your thinking.  Good luck to you.

 

Like many here, I've considered a similar path, but at this point haven't followed it.  I'm not at all certain that investing as a full-time endeavor would be better for me financially than working full-time and investing as a hobby.  Investing part time over the last 6-7 years I've managed to beat the VFINX by 2-3% per year.  A balanced asset allocation leading into 2008, good timing on SHLD and BRK, and buying lots of WDC in 2011 account for most of the outperformance.  I'm quite pleased with that result, but I'm not sure if that would have been +5% or more per year if I was doing it full time.  Honestly, I doubt it.  Plus, having OPM to deal with may have changed my perspective on risk taking (I'm already rather conservative) and left me with much more pedestrian results.  I'd have a hard time charging x% of assets if I'm not doing much better than the index.

 

Barring economic catastrophe or serious health issues for my family, my status quo trajectory is quite good.  Sure, I'd rather quit my job and spend my days reading and researching stocks, but it's not clear that I'd improve my lot much, if at all.

 

One final observation (directed at no one in particular):  this thread reminds me quite a lot of the cubicle conversations I'd hear back in 1999.  Everyone was just one more good year on the NASDAQ away from retiring early.  This is a savvier group of investors, but the sentiment doesn't seem all that different.

[StubbleJumper]

I have had thoughts around this subject matter for a long time now, and am currently only working with my investments. I used to play poker for a living, but couldn't cope with it for several reasons and quit several years ago. I have a Master's degree in accounting from a top University and around 1.4 Million USD in my investment portfolio. I have averaged > 40% yearly the last five years with very little leverage, and feel pretty confident in my abilities. I'm in my mid-twenties and do not have a partner.

 

What I really would like to do is to form a partnership Buffett style and manage other people's money along with my own, but Swedish legislation doesn't allow that. I am an introvert person, but at times I feel that the lack of human contact gets to me. I like the thought of doing philantropy at a big scale, so for me it has become sort of a moral obligation to continue investing and focusing on it full time seeing that there is so much money to be made from compounding 50 years down the road.

 

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like.

 

Also. Does anyone here know how hard it would be for someone from a socialist country such as Sweden to move to the states and set up an investment partnership?  ;)

 

 

Sometimes people are jealous and suspicious of those who have accumulated sufficient wealth to retire very early.  My view is that if the money was legally earned, to hell with what anyone else thinks.  It's legitimately your money to do with what you like.

 

In terms of setting up an investment partnership, it would seem to me that the easier approach would be to simply move to a country within the EU that permits the type of investment partnership that you would like to establish.  Ireland or the UK might work?  Otherwise, to move to the US could require a significant effort to obtain work visas...

 

 

SJ

[cubsfan]

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like.

 

SwedishValue - interesting you mention this. For the last 5 years, as I've told friends/family what I am doing. They always ask me "How's the day

trading going?". This seems to be the public consensus for anyone who calls themselves a private investor buying stocks.  Then I tell them

that 70% of my gains have been LT cap gains, and intend my holding period to be 1-3 years. Even then they don't quite get it.

 

As a few others have mentioned, one of the tougher challenges is to find LIKE MINDED value investors that you can communicate with.

Most of my friends don't really get it - since they can't possibly think of holding a stock for 12 months.

 

Early on in my career before doing this full time - I proved to myself I could lose a lot of money by trading. Only when I started studying

Buffett in 2002 (after large tech losses) - did I "get" value investing.

 

If you are met with disapproval - I would venture to say they don't "get" value investing. They think speculator.

[hyten1]

zarley, not trying to disagree just pointing a few different perspective.

 

sometimes investing full time is not just about earning more, even if you earn the same, some people enjoy it. its just like job A vs job B, a and b might be 2 completely different profession/job and they might make the same amount of money but obviously some folks would prefer A vs B do to the job itself etc.

 

i do share your sentiment on now vs 1999. maybe its an indication that we are a top or not, who knows. but i do worry and trying to de-risk my portfolio.

 

but i do have to say, for me i needed a lot more time to determine if i am good or if its just luck, jury is still out (I think its prob 60% luck and 40% skill). but i guess that didn't really stop me from doing it.

 

the way i see it, the worst case scenario is, if i hate doing this i'll go look for a job, at least i won't be always wondering what it could of been. then again i already have enough where i don't need to work, but we all know most people on this board will be bored out of their mind if they did nothing.

 

there is always something to learn, improve, and do.

 

EDIT: the crazy thing about luck vs skill. I think overtime i have realize this value investing thing is one of the few things you can do really well (when i say really well, i mean financially) with just little bit of skill. that might sound crazy. but comparing value investing to lets say what a doctor or even a computer programmer needs to know. doc/programmer needs to be very precise, value invest you don't. you also have the luxury of coat tailing some greats. which you can't do that if you are a doctor or programmer. but don't get me wrong there are different skill involve and things you need to know etc. jmho

 

 

On Friday I just put in my notice to work that I would be leaving the company.  My personal targets were always to leave once I got to ~$5M in AUM (reached last year, around $6.5M now, but some of that is mine).

 

I basically figure(d) if I could make $40-50k off of the RIA business, then I could live modestly and my portfolio would be untouched and it could grow for the future without fear of withdrawal rates, etc.  Of course in general I expect the business to grow in time at a good clip but that is all upside.

 

Some Thoughts:

1) I do worry if additional work doesn't help returns - I think it will, but I am putting some things in place to firewall "activity" and make sure my incremental time is spent reading.

2) My goals are not to do this because it's entrepreneurial at all... I like the challenge, I enjoy the fact that it is mine, no one else is responsible for my record.  I also most enjoy the freedom of time / location that it affords me. 

3) I believe I have a decent # of potential clients who have hesitated to sign up with someone who is "part time" over the years, so I think a few new clients may be in the making (in addition to folks at my work who weren't aware of what I do, and now will be).

 

Just a few thoughts for me.  We'll see in a year of actually doing this exclusively what additional lessons or insights I will have.

 

Ben

 

Congrats Ben.  I've followed boards you've been active on for quite a while and have always been impressed by the quality of your thinking.  Good luck to you.

 

Like many here, I've considered a similar path, but at this point haven't followed it.  I'm not at all certain that investing as a full-time endeavor would be better for me financially than working full-time and investing as a hobby.  Investing part time over the last 6-7 years I've managed to beat the VFINX by 2-3% per year.  A balanced asset allocation leading into 2008, good timing on SHLD and BRK, and buying lots of WDC in 2011 account for most of the outperformance.  I'm quite pleased with that result, but I'm not sure if that would have been +5% or more per year if I was doing it full time.  Honestly, I doubt it.  Plus, having OPM to deal with may have changed my perspective on risk taking (I'm already rather conservative) and left me with much more pedestrian results.  I'd have a hard time charging x% of assets if I'm not doing much better than the index.

 

Barring economic catastrophe or serious health issues for my family, my status quo trajectory is quite good.  Sure, I'd rather quit my job and spend my days reading and researching stocks, but it's not clear that I'd improve my lot much, if at all.

 

One final observation (directed at no one in particular):  this thread reminds me quite a lot of the cubicle conversations I'd hear back in 1999.  Everyone was just one more good year on the NASDAQ away from retiring early.  This is a savvier group of investors, but the sentiment doesn't seem all that different.

[zarley]

zarley, not trying to disagree just pointing a few different perspective.

 

sometimes investing full time is not just about earning more, even if you earn the same, some people enjoy it. its just like job A vs job B, a and b might be 2 completely different profession/job and they might make the same amount of money but obviously some folks would prefer A vs B do to the job itself etc.

 

i do share your sentiment on now vs 1999. maybe its an indication that we are a top or not, who knows. but i do worry and trying to de-risk my portfolio.

 

but i do have to say, for me i needed a lot more time to determine if i am good or if its just luck, jury is still out (I think its prob 60% luck and 40% skill). but i guess that didn't really stop me from doing it.

 

the way i see it, the worst case scenario is, if i hate doing this i'll go look for a job, at least i won't be always wondering what it could of been. then again i already have enough where i don't need to work, but we all know most people on this board will be bored out of their mind if they did nothing.

 

there is always something to learn, improve, and do.

 

Please don't get me wrong.  This sort of choice is very much an individual choice and very dependent on the specific circumstances of each person.  In my case, I've convinced myself that I am adding value over just buying and holding the index, but for a few reasons, the prospect of quitting my day job and/or running OPM doesn't make sense for me.  There are certainly people on this board who I would consider if I needed an investment advisor (Ben Hacker for one). 

 

Perhaps I'm too cautious, which causes me to see parallels between now and 1999 when it's inappropriate.  Mostly just thinking out loud that year 5/6 of a raging bull market is a dangerous time to project out your 5 year investment returns as part of an early retirement plan.  That may work out just fine for some people, but . . . again, I'm pretty conservative.

 

[randomep]

Free Capital is a good book on retiring to invest full time, from a UK point of view. Discussed here:

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/tips-for-investing-full-time/

 

http://www.amazon.com/Free-Capital-private-investors-millions/dp/1906659745

 

One of the best investing books I've read. Looks like the posts here can provide material for a US based version of the book.

[Uccmal]

 

I get a lot of questions from people around regarding what I actually do, and I feel like I get a lot of disapprovement. I would much appreciate thoughts from fellow investors how to cope with this, and also how to cope with the potential for procastrination when you got all this time to do whatever you like.

 

People are funny.  They dont bat an eye over a  pro athlete, or golfer, or musician, or chess player.  But a pro investor... oh, no.  My wife even worries about what people will think.  I personally dont care, and will probably end up adding more value to society as an "investor", rather than as a salariman.  It is after all, my ability to ignore the good opinion of others that has led to my success at value investing.

 

Jim Rogers of Soros' fame, always tells people he is unemployed.  I expect he is busier than nearly anyone I have ever met for being unemployed.  And he wears rude suits and obnoxious bow ties.

[ERICOPOLY]

and will probably end up adding more value to society as an "investor", rather than as a salariman. 

 

1)  You are providing a job to the person who replaces you

2)  You are not being "greedy" earning more money for yourself that you don't need

 

Look, if more people would quit when they are ahead there would be a more balanced society.  There would be less unemployment, less concentration of wealth.

 

We are part of the solution, not part of the problem  :D

[BG2008]

I'll share a bit of my experience of walking away from a decent job and using personal savings to launch a HF.  This is a bit different situation than what most people talk about. 

 

In early 2011, I walked away from a finance job that paid well but involved long hours, travel, and politics.  Working during Christmas break was what broke the camel's back.  Given that I live in NYC, the overhead is a bit more expensive. 

 

From 2011 to early 2013, I invested mainly in my PA and experimented with various strategies.  My main goal during this time was trying to figure out how to weather a storm akin to 2008/2009 without the following government bailout.  There are two reasons for this.  Although I do not believe that volatility is risk, extreme volatility like 2008/2009 coupled with the need to withdrawal for living expenses can create a death spiral like others have mentioned on this board.  Second, many people were 100% invested going into 2008/2009, their portfolio suffered deep mark downs and some suffered permanent impairments.  When finding triples is like shooting fish in a barrel, they had very little cash to take advantage of the situation.  I wanted a strategy where I can earn a decent rate of return and yet have cash on hand during 2008/2009.  I also believe that this will lead to out performance in the long run if you can achieve >100% every 10 years.  (Hence my handle BG2008 - Ben Graham 2008)

 

So, I stressed myself out and kept looking for opportunities that are truly market neutral.  The most ideal candidate is an investment that pays out cash upon certain liquidity events.  During that time, I've been ridiculed by other fund managers along the line that "if you can't take the heat, maybe you shouldn't be in the kitchen."  Perhaps, I'm an hardcore fan of Seth Klarman and his view that the investments need to survive a depression.  Perhaps, I'm just stubborn that way.  I refused to compromise and eventually did stumble upon a few niches/strategies where I can earn a reasonable rate of return that is totally market neutral.  I am not saying they are abundant, but they do exist.  During this 2 year period, I experimented with shorting, buying puts, etc.  Nothing worked to my satisfaction.  Eventually, I found the ideal answer in Buffet's early partnership structures.  Buffet allocated 1/3 of his strategy to workouts and special sits.  It is ironic that the answer was there all along.  Keep in mind though, Buffet was able to earn 20% IRRs doing merger arbitrage in the 60s.  Those opportunities are not available.  So you have to find your own market neutral strategies.  I can't divulge mine. 

 

I share this experience with others who are contemplating leaving a recurring revenue source and invest full time.  It maybe worth it for you to discover your own workouts/special sits when your burn rate is higher than what you are comfortable with.  Also, keep in mind that many market neutrals did not prove to be market neutral back in 2008/2009, i.e. certain merger arb strategies or spread trades.  I believe that I have uncover a few that are truly market neutral even under those circumstances.  The alternative recommendation that I have is if you believe you can earn a reasonable rate of return while sitting on 40-50% cash, then you're likely good to go.  Once I figure out my market neutral strategies (a portion of my portfolio), I launched the fund in Q2 of 2013. 

 

From an expense perspective, we we moved out Manhattan into Queens.  Given that my wife and I are foodie's, we eat out less often and cook more at home.  We are particularly proud to say that we arbitrage the quality of food by shopping at restaurant depot paying wholesale prices for high end foods like gulf shrimps, lobster, and steaks.  We cut out the middle man (wait staff and chefs and taxes) since I grew up in the food business.  For a normal budget, we are able to eat pretty well which ranks very high on our quality of life ranking.  Maybe, I'll start a monthly dinner club at my apartment for those in the NYC area to share ideas and investment process.   

 

Regarding the effects of loneliness, structure, etc.  Having a network of like minded individuals is very important.  I'm on the phone for at least a few hours a week talking to others about investment ideas.  Not having co-workers takes some time to get use to.  But, you also don't have to deal with big egos in the office, bosses, and difficult co-workers.

 

When working on your own, there is a ton of flexibility which can be good or bad for certain individuals.  Some people tend to thrive in a more regimented environment.  However, I recommend all to buy the book The Pomodoro Technique as it forces one to focus on the task at hand and avoid suffering from "option galore paralysis"

 

http://www.watheeqa.com/App_Themes/watheeqa/pdf/10%20%20Ways%20to%20Improve%20Your%20Investment%20Process%20l%20Greg%20Speicher%20l%202011.pdf

 

Having buy-in from your spouse is very important.  There are stretches where you can't find decent ideas.  Both you and your spouse need to be able to understand the long term objective.  On that front, I believe I have hit the lottery. 

 

Lastly, to SwedishValue, I believe that you will be doing a wonderful service to mankind if you devote your life to compounding capital at a high rate and giving it away at the end or along the way.  My reasoning is that losses and gains are natural in the investment world.  There will be winners and losers.  The world is a better place if you are the beneficiary who intend to give it away for philanthropic causes rather than another New York City hedge fund managers blowing it on $100 million apartments, mansions, and bottles and models.  I too plan on giving away some wealth once I know that my family is taken care of. 

       

 

 

[benhacker]

Zarley,

 

Thank you for the (very) kind words.  I'm glad I've been more signal than noise over the years from your point of view!  Made me smile!

 

Regarding my choice, I'll repeat what others have said about it not (always) being a financially motivated decision.  I am skeptical of how my returns will change with more time, but I have *zero* doubt that my (conservatively estimated) financial situation will be negatively impacted by leaving my day job (to be fair, I'm a reasonably high income engineer / manager so I am giving up much more than most I think in similar circumstances).  I am actively choosing to reduce my future net worth through this decision, but I view what I'm receiving in return as much more valuable.

 

Certainly if my investment business explodes (in a positive way!) and I'm a super star in the future, I could be very wealthy, but I'll be passing up six figure+ money for years before that happens... the opportunity cost is large.  I'm truly just doing it because I have always wanted to own my destiny and do whatever I want every day.

 

I have not thought a lot about what others will think or ask about when I tell them what I do every day.  I've always found it pretty easy to explain what I do (I just tell people I read / research a lot basically), and most people who even casually know me are aware of both my passion for research and my high levels of thrift so the idea of me retiring for most of my acquaintances is already something they expect.  Regardless, I'm comfortable being different, and I think most folks I will meet in the future can appreciate people who take a different path.  But if not, that is ok.  My wife will explain it to them in plainer English than I can. :)

 

Regarding this thread being a sign of the top.... +1, this an many threads have me a little contemplatively lately.  I take no offense if my leaving is another sign... last year was a shitty relative year for me anyway so I feel contrarian already.  I also started my business originally in late '06... so basically, I am the contrary indicator... beware! :)

 

Ben - still excited!

[CorpRaider]

rukawa

Buffet did not retire he had a Hedge-fund I think about this time so if he produced more the 6 percent per year he got a "salary" so that was a help. 

 

You sure about that timing?  Not that it really matters, but I thought that was after Graham Newman closed up shop and he declined to carry on with Mr. Newman (and his son?) and decided to go back to Omaha.  I thought it was after this decision (not to just retire and live off his own capital) that he formed the first of his own investment partnerships with friends and family.

[ASTA]

don't know the timing really :D

But he only put $100 in that hedge-fund of his own capital :D

but it was about that time I believe the magic of the hedge-fund industry help warren a bit.

But he was nice regarding fees which is not so today 99% are corrupt regarding fees now. 

[Redskin212]

This is a terrific thread.  A couple of years ago I ended up becoming a full time investor after my day job ending.  I had just turn 50 at the time and thought I was well prepared to make the transition even though I had quite reached my number.  At the time my children were 2 and 4, I had travelled basically fulltime for my jobs I thought it would be a great time to stay home to be with my wife and young family. 

 

To be a value investor you have to be somewhat of a contrarian, so staying home and investing  is that much of a stretch for a lot of us if you have sufficient capital.  When I left my job, I was a little short of what I thought was my "number" - the continuation of a nice bull run in 2013 has bridged that gap. But one never knows for sure!!

 

For simplicity, I will outline the positives and negatives of my experience.

 

Negatives

- Stressful.  There is no fall back.  Once I started doing this there was (and still is to a lesser extent) a tremendous weight on performing to provide for my family.  It is not a steady paycheck and very different from investing when you have a full time job.

- Isolating.  Definitely.  I get those feelings a lot as I miss the interaction at the office place.  I go to seminars/conferences on occasion but it is just not the same.

- People just don't get it.  I really don't try to explain, but I feel a lot of resentment from neighbors, etc.. for the fact that I have been fortunate enough to stop working.

 

Positives

- Time with kids/family.  It is a cliché but kids grow up fast and you can't get the years back.  So it has been awesome to be around the house and be able to attend all the silly little events etc.. with them. 

- Freedom.  Obviously it is great to set your own schedule.  I really don't spend that much more time researching/analyzing ideas etc. now that it is my full time job.  I have been a serious investor for about 10-12 years now and my process is pretty much set.  I don't believe if I spent more time at it my performance would improve.  I have the same problem as a lot of value investors have - usually too early when buying and too early to sell.

 

Concerns

- Burn rate.  There are a couple of things I can't really control which I worry about.  1) Health Care costs and 2) Cost of University for the kids.  You just never know, so I tend to worry a lot about these two items.

- 5 Year Bull market.  Things have gone great for the past 5 years.  I survived the 2008/2009 well, but my portfolio was much smaller and I had a job to fall back on.  Always nervous of a downturn, I do invest a lot with Fairfax, so hopefully that will migigate a portion of the risk.

 

I hope this helps.  It is a very big decision and I wish you all the luck if you decide to go through with it. 

 

 

[ZenaidaMacroura]

I work in chemical engineering and absolutely loathe the profession.  I figured in a decade I would be ready to take the leap as I'm in my mid twenties and have a mid six figure PA, no debt etc.  In the last 3 years I've compounded at a greater than 40% clip per annum.  But recent circumstances have changed my view of my potential end-game. 

 

My mom got diagnosed with stage IV NSCLC (lung cancer).  She doesn't smoke (nor secondhand smoke) and it wasn't environmental - just an unfortunate genetic disposition.  It is fortunate that my father (who works for the same company as I do) has a very beneficent corporate health insurance policy.  If the cost had to be procured out-of-pocket one would have to compound my portfolio at a greater than 50% rate.

 

Additionally, the company is extremely accommodating allowing him take time off without notice to be with her whenever she's receiving treatment.  I think it would be a bit much to have to worry about performance while enduring such an ordeal, high cost of medical expenses nonwithstanding.

 

Something to think about.  :'(

[gary17]

Zenaida, hope your mom will do well, hang in there,  all the best .

[ZenaidaMacroura]

Zenaida, hope your mom will do well, hang in there,  all the best .

Thanks

[Aurelius]

Great thread!

I am also a former poker player. Someone asked for similarities between poker and investing. I'll try to shed some lights on that as well as talking a little bit about the experience which I feel has similarities to investing full time.

 

Playing poker professionally means you have no boss – you need to manage your time by yourself. I feel a lot of people struggle here. It can be isolating. It's especially hard when variance is against you and you lose/break-even for longer stretches.

 

Now you might think that you will be good dealing with adversity. My experience is that probably over 99% of people struggle a lot in this regard. People in general hate losing, always feel they are more unlucky than the average person. And if you are not leading a balanced life the problem compounds, because often a lot of your self-worth (unfortunately) will be tied up in how your results are.

 

You can get better dealing with adversity. Personally I read books, wrote journals, and had check list when playing. Also I hired a coach. Ray Dalio talks about meditating.

 

So leading a balanced lifestyle would be really advisable. Taking (forced, if necessary) time off, travelling, remembering your old friends and family, etc. It would be advisable because obviously it would be a healthier lifestyle. But at the same time, you would come back to your job refreshed. You would last longer in your chosen profession. It would be less stressful.

 

Being obsessed and unbalanced in your lifestyle can happen really easily when pursuing your passion. But I would argue, focusing on being balanced would lead to a better life, especially so when your line of work has a lot of variance which you can't control.

 

The counter argument is obviously that being obsessed is what gets you the results. I believe that is true. But I also believe true passion and a balanced lifestyle can co-exist. Pabrai talks about this. I think I also read that Seth Klarman focused on spending time with his kids when they were young.

It’s the old “no one on their deathbed ever wished they spent more time in the office” kind of thing.

 

Personally I shared an open office with several other poker players. This definitely played to my advantage. Getting out of the house every day; being around other people; helping each other out. Debating and learning. Going out for lunch. Etc.

 

For me this was a much richer life (socially and professionally) than if I had worked from home. I would be drained for energy being alone around the home so much. And it's not that I'm extroverted (I'm not), but being isolated isn’t nice either.

 

I pretty much never struggled with financial stress. I didn't have a lot of responsibilities at the time. Also I continuously focused on building a bigger bank roll. After a couple of years I was very comfortably rolled with regards to the games I played in. Financial security is key to staying focused and playing to the best of your abilities. Also it's key to a healthy mindset/reduced stress and anxiety. It shouldn't be underestimated. Bad times will come; it’s all about being prepared.

 

Investing as well as poker is about process. There are things you can control and others you can't control. If you are going to react badly when the inevitable happens because of financial stress you've done yourself a great disservice. You will be hurting and agonizing. It will be terrible, especially if you have responsibilities. I can't stress enough how important it is to be financially secure when playing professionally. And I would imagine the same goes for investing full-time.

 

A final note on personal finance. I’m not saying you shouldn’t take any risks. I did and it paid off handsomely and I had a great time. I was younger with much less responsibilities than now. Just beware of how adversity might affect you. Have a backup plan. Is it possible to have at least some extra income to lower your burn rate?

 

One big difference with investing/poker is that you can only win money in poker by playing. If you aren't putting in the hours, you get no pay. Investing is the opposite, which is nice.

 

In poker table selection is a BIG thing. You can be one of the best players in the world, but if you consistently choose to play in games where you have little or no edge, or worse are an underdog you aren't going to be successful.

 

You guys might have heard of Gus Hansen. He'll never beat my online results. Not because I'm better than him, but because his table selection is terrible. Having a low ego and being humble/objective will help you a great deal. You will be more willing put in the hours to improve. You will also apply stricter rules with regards to the games you play in.

 

Gus Hansen – famous poker player – his online results on Fulltilt Poker:

http://www.highstakesdb.com/profiles/Gus-Hansen.aspx

 

I’m sure I’ve forget some things, but it’s getting long. On a final note I would say poker is about continuous learning and loving the process. I imagine active investing is very similar. Such a great thing investing can be done passively. 

 

 

[alwaysinvert]

On the poker vs investing note - I have written a bit about this previously, but there was something I never touched on.

 

I have experienced multiple BIG drawdowns in networth and know what it feels like (-50% maybe three times, -99% once, now how many decades is that in investing?). That's an experience which I think can be worth a lot. People maybe think they will be rational about it (or 'philosophical' as Munger puts it). But from my experience they won't. At least not in the majority of cases. I think only experience can make this easier for those who are in the normal emotional spectrum.

 

Now, obviously you can mitigate these risks somewhat with portfolio allocation. Putting on 50% positions and such without positively knowing how you'll react to big drawdowns strikes me as naive at best. If you can take the heat, fine. But most people can't do it even with a dayjob to fall back on. Yes, I acknowledge that most people here are introvert rationals and that obviously helps. But I still think we are mostly closer to 'normal people' than to Buffett, Munger and Viktor Blom (http://en.wikipedia.org/wiki/Viktor_Blom).

 

I was an aggressive poker player who pushed small edges and played high stakes with relatively small error margins, but I still feel timid in investing when I read this board. Now, I'm obviously way less skilled at investing than many of the boardmembers, but I can't quite shake the feeling that it's a sign of the times.

[ukvalueinvestment]

I guess most of us have thought about giving it all up and just running a PA account at some point.  My thoughts:

 

1) Just because you don't have a "proper" job doesn't mean you automatically become some sort of recluse where you lost human contact.  There's any number of social activities you can pursue to keep in touch with people.  I happen to think it's quite sad if you think that quitting work will lower your chances of meaningful human interaction.

 

2) Value Investing is about margin of safety.  That means being conservative at all times.  Personally I target 12% over time.  I think that's eminently possible given I have some skill (IMHO), temperament, education, and probably most importantly don't have to be fully invested (institutional imperative), and can take advantage of small cap, special and illiquid situations.  But I constantly ask myself the question "what would happen if the market went down 75%?".  And if investing is your only source of income, I feel you need to be prepared for a massive drawdown in the first few years, through no fault of your own.  Markets can remain depressed for many years.  I've seen figures like $1mln and mid six figures mentioned.  Given that returns are going to be taxed, and you can maybe do 10% at best over the full cycle, unless you are exceptional, I suggest that $1mln is nowhere near enough, if you assume the market could fall substantially very soon.  We are in the middle or end portion of a MASSIVE bull market.  I would suggest that the margin of safety approach is to make the move to managing your own money only after a large market downturn, when the tide is in your favour.