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02/07/2012

Letters to a Young Analyst


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Those of us who have been in the investment business for a number of years are often asked for advice about what it takes to get a job and to get ahead in this very competitive field. Given the complexity of the industry and the degree to which it has changed over the decades, it is not surprising that my suggestions have evolved, but the principles that underlie them have not.

When I read a wonderful book by Ian Stewart, Letters to a Young Mathematician (Art of Mentoring), I was struck by how closely the themes of his advice in a completely different realm matched those of the advice that I give. So, I wrote a series of letters to a young analyst that dealt with those common themes. Each of the seven dispatches covered an important aspect of the new job that the recipient (named Tim) would be starting—and of the profession he had chosen.

The first letter compared the work of an investment analyst to Tim’s efforts on a research project, when he “peeled away layer after layer, always reaching for the next source, noting the anomalies that others would have tried to wish away, cursing the dead ends, digging deeper and seeing the connections between details that might have been overlooked, and working harder than everyone else around you.” That’s a good description for the primary attributes an analyst needs: curiosity, drive, and the willingness to think differently than others.

Coming out of school, one of the first challenges for someone entering the investment business is thinking about the differences between theory and practice. An important way to approach the dichotomy (throughout your career) is to be rigorous about examining the assumptions that underlie the decisions that you make—learning from the theory and from the practice, improving your approach along the way, and never letting either end of the spectrum box you in.


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Working on how you present your thoughts, in “print” or in person, is critically important. As I wrote to Tim, a great way to differentiate yourself is by learning to tell stories well, those about yourself and those about your investment ideas (always being honest along the way). Almost everyone underestimates the importance of communicating ideas effectively. A fast way to get ahead is to do it better than others.

The business is relentless in looking forward and, as a result, the lessons of the past are often forgotten. When reading about the investment world, avoid the pundits and most how-to books. Focus instead on market history. To a lesser extent, you can try to learn from the acknowledged masters of the industry, as long as you are aware of the pitfalls of guru worship. Above all, to become wise, you’ll need the qualities of “independence, objectivity, and discernment.” You get that from a sense of the broad sweep of history, not the urge for a quick profit.

For an immediate impact at your firm, there’s nothing quite like hacking your way, by mastering the electronic tools of the trade. It’s surprising how much relative advantage can come from true computing expertise. Those who dig into the code can solve more problems than those that can’t (and the elders will take notice).

Should you get a CFA, an MBA, both, or neither? Few questions of advice are as common as those about earning credentials. There is no hard and fast answer, but, “If you choose to pursue an MBA or a CFA, remember that they are built upon orthodoxy, by and large, which you need to learn and attack at the same time.”

Much of the work of investments is solitary by nature, but most people work in organizations. It’s best if there’s a balance between the perspective that relative isolation can bring and the flow of information pulsing through the market and your firm. And I can’t stress enough the importance of finding a home amidst the tumult—a way of working and a place to do it that are conducive to success. If you’re lucky, you’ll find yourself at a shop, like I did at a relatively young age, with “a great culture, solid performance, and an important place in the industry.”

If you are at the start of your journey in the investment world, like Tim, you will get to experience the challenges and delights of a profession that never gets old. Make the most of it.

–Tom Brakke

Tom Brakke, CFA, provides consulting services to investment organizations on decision making and the communication of ideas. The original series of letters appeared on his blog, the research puzzle.

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Comments

Love this article .... as a newbie to the financial world to find this article very helpful.

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