Stress of Managing Money

[spartansaver]

For those of you that manage money, does the stress of possibly losing others money ruin the enjoyment of investing at all? Buffett seems to always talk about how much he loves it, but he's also the exception to trailing an index at certain times. How do you handle it when you get behind and you hear clients complain about your choices? It seems easy when your ahead, but how do you not change your game when you get behind? I love investing, but it worries me that as I try and get into the field as an occupation the stress will kill the enjoyment.

[merkhet]

A lot depends on whether you have an internal or external scorecard. If you spend a lot of time worrying about what others will think of you, then you are likely to subtly change your investment process. If you don't, then you might lose some clients. At the end of the day, you decide what's more important to you.

 

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

[Jurgis]

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

 

Like Mike Burry did, yes? :P

[merkhet]

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

 

Like Mike Burry did, yes? :P

 

Every now and then life is subject to random error. :P

[Liberty]

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

 

Like Mike Burry did, yes? :P

 

Every now and then life is subject to random error. :P

 

To be fair, while Burry is brilliant, his early investors didn't know at the time that they were signing up for a big macro bet when they invested with him, they thought they were getting something else, so without the hindsight of knowing that the bet worked out in the end, it's pretty easy to understand that they were nervous and some wanted to get their money out.

 

If I had put my money with him for his value-based stock picking abilities and learned that he was buying vast quantities of credit default swaps and side-pocketing the money, I might have gotten nervous too. I don't know.

[rb]

For those of you that manage money, does the stress of possibly losing others money ruin the enjoyment of investing at all? Buffett seems to always talk about how much he loves it, but he's also the exception to trailing an index at certain times. How do you handle it when you get behind and you hear clients complain about your choices? It seems easy when your ahead, but how do you not change your game when you get behind? I love investing, but it worries me that as I try and get into the field as an occupation the stress will kill the enjoyment.

Different people here will have different views on the subject. I'll just give you mine.

 

Yes, things go better with the clients when I'm making money. And yes, I don't like loosing money. But it doesn't really stress me out. I think I have a pretty good approach and framework to investing and I stick to it no matter what the market does. What I do when I have names that are going down is go over my thesis again carefully to make sure that I haven't made a mistake. If I didn't I stick with it or buy more. If I made a mistake I sell.

 

To address another one of your points, I think it's stupid to change what you're doing in relation to what the market is doing. Such as get more aggressive because the market is down in order to catch up. If it was smart to be more aggressive then you would have done it all along. Then when you do stupid things you loose more money and you're worse off.

 

If you loose money not because of the market but because you made a mistake it is my opinion that the best thing to do is be upfront with the clients and tell them you've cocked up on that one. Mistakes will happen and they're ok, just try not to make them too often.

 

What stresses me out are times like these, when there's not much to buy out there and I have a high cash position. I know it may be the right thing to do, but these people hired me to invest money for them not to hold cash. So I feel like I'm failing at my job. This is especially bad with new clients with whom I don't have a long relationship and also don't have legacy positions and thus carry a higher cash %. I always picture myself getting fired at our next meeting. That doesn't really happen (well not much) but it still stresses me out.

 

 

[benhacker]

For those of you that manage money, does the stress of possibly losing others money ruin the enjoyment of investing at all? Buffett seems to always talk about how much he loves it, but he's also the exception to trailing an index at certain times. How do you handle it when you get behind and you hear clients complain about your choices? It seems easy when your ahead, but how do you not change your game when you get behind? I love investing, but it worries me that as I try and get into the field as an occupation the stress will kill the enjoyment.

 

I think it's a risk for sure, and managing for others will no doubt change at least some aspect of how you view investing. However, I will note that investing for others also comes with many additional benefits (I manage some funds for little kids and it is great to think about your skills going to help pay for some part of their future, etc).

 

The way I have suggested to deal with this is to be very very clear with potential clients how you expect them to interact with you.  If they complain about investments, or nag you all the time, you have failed at this initial screening and education.  If you want to just take all comers as clients, than I believe this is an issue (you are highlighting) that is unavoidable and you will need to ignore it, or learn a way to smooth over clients emotions like high touch advisors do.  In my experience, careful filtering, and selection (and some pruning as well) of clients leads you to a much better place to mentally focus on whatever it is you do to make good returns and enjoy your life.

 

But even with all of that said, at the end of the day you need to think about what makes your mind work.  Some folks are stressed out by underperformance, some are stressed out by temporary losses, some by market crashes, some are stressed out by the fear of clients calling and asking "WTF", others fear making a mistake (vs temporary loss) and having to disclose to clients.

 

Know yourself, it is likely that over a career as an investor, everything that can happen will happen, so prepare yourself both mentally and from a business perspective to prosper throughout it all.

 

I've been doing this about 8 years, and I have found that mentally for me, losing money in a down market (but outperforming) was actually much less stressful than having poor (relative / absolute) but positive returns in strong bull markets.  But neither of these (for me) is as stressful as simply making a clear mistake, and having to say so.  I think it's because a "mistake" is the one thing you should be able to control the most.

 

That's my 2 cents.

[Jurgis]

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

 

Like Mike Burry did, yes? :P

 

Every now and then life is subject to random error. :P

 

To be fair, while Burry is brilliant, his early investors didn't know at the time that they were signing up for a big macro bet when they invested with him, they thought they were getting something else, so without the hindsight of knowing that the bet worked out in the end, it's pretty easy to understand that they were nervous and some wanted to get their money out.

 

If I had put my money with him for his value-based stock picking abilities and learned that he was buying vast quantities of credit default swaps and side-pocketing the money, I might have gotten nervous too. I don't know.

 

Liberty, the issue was not that they were nervous while the bet was working out. The issue is that they dumped him after he made multimillions for them.

 

"So long and thanks for all the fish" and all that.

[randomep]

Either way, over time, I suspect that an investment manager gets the client base he or she deserves.

 

Like Mike Burry did, yes? :P

 

Every now and then life is subject to random error. :P

 

To be fair, while Burry is brilliant, his early investors didn't know at the time that they were signing up for a big macro bet when they invested with him, they thought they were getting something else, so without the hindsight of knowing that the bet worked out in the end, it's pretty easy to understand that they were nervous and some wanted to get their money out.

 

If I had put my money with him for his value-based stock picking abilities and learned that he was buying vast quantities of credit default swaps and side-pocketing the money, I might have gotten nervous too. I don't know.

 

Liberty, the issue was not that they were nervous while the bet was working out. The issue is that they dumped him after he made multimillions for them.

 

"So long and thanks for all the fish" and all that.

 

Jurgis, you are correct.

 

But I think I would've tried to pull my money out if I was invested with him during the crisis.

 

After the bet played out I think the investors (who were sophisticated) felt that he did not do what they signed him up to do. So they pull out. I cannot blame them.

 

It is only with 6yrs of hindsight and 2 popular books written about him that we realize the brilliance of what he did.  As the crisis unfolded I think the only way I would've believed his thesis is if he showed me the bond prospectus where there was an X % of people defaulting on the mortgages in the FIRST month!

 

 

 

[Jurgis]

But I think I would've tried to pull my money out if I was invested with him during the crisis.

 

He locked them. Which pissed them off. ;)

 

After the bet played out I think the investors (who were sophisticated) felt that he did not do what they signed him up to do. So they pull out. I cannot blame them.

 

Blame might be wrong word.

 

It's just funny.

 

So you give money to someone to manage. They go off and get you 10x+ return during the worst financial crisis ever. And you fire him because "he did not do what you signed him up to do". He should have stuck to value stocks and returned 20-30% losses like the rest of the managers. That would have been outstanding.

 

No, I understand their thinking.

 

It's just that the lesson is: don't dare to do something that's not in the charter. Even if it's brilliant and you succeed, your ass is gone.

 

Anyway, I think I flogged this donkey enough.

 

Peace.  8)