In an earlier but extremely popular posting entitled –Hiring Portfolio Managers? Go for the older guys! – I hinted that age discrimination, at least when it comes to the investment industry is a bad idea, even if it is endemic. I have no supporting statistics, but I can assure you that I have expressed an interest in many job openings recently (not just as an experiment either) and despite my modestly accomplished career history there hasn’t even been one call back. I asked my daughter what she thought the reason was and without hesitating said: “Dad, you’re too old!”
I am not suggesting that training young folks for a career in finance should be avoided. Rather that quantitative and fundamental analysis skills combined with enthusiasm need to be tempered by wisdom and experience. One comment I especially liked in response to my blog post follows:
“As the former head of global recruitment at a large investment firm, I highly agree. Our MDs wanted experience and those managers who had withstood a large downturn in the market so that they had that experience. Performing well in a good market is not difficult; knowing what to do when the markets are crumbling is something only experience can bring!” Alice J. Goffredo, Principal at Goffredo Consulting Group Inc.
Kudos to Alice. It generally takes more than one cycle to learn much about markets and the potentially devastating fallout from volatility. And even with experience and complex risk modelling, most PM’s are constrained by guidelines and client policy in various ways that prevent them from acting in front of bear markets (policy guidelines that prevent them from timing markets or even deviating slightly from their alpha-generating investment style; more money to get invested just keeps coming in etc.).
It takes guts to do what is right to skate client funds out of an ugly market (selling stuff at a loss to restructure a portfolio for higher alpha when market goes higher). I cover alot of this in my book “A Maverick Investor’s Guidebook” published last year. Here is an excerpt from Chapter 10:
“Even though it is extremely difficult (perhaps impossible) to consistently predict market declines, there’s plenty of evidence to suggest you can do something about your circumstances once the proverbial poop hits the fan. Fund managers often respond differently depending upon depth of experience or temperament:
• Some are no more experienced (or no smarter) than retail clients—they panic and sell at the bottom of markets.
• Some proclaim a new respect for caution and hold more cash and bonds…after selling at the bottom.
• Some say they’re cautious and secretly buy stuff, expecting a rebound (only a “little” dishonest, but this is not a business suited for even “a little” dishonesty).
• Some boldly acknowledge they didn’t see the bear coming, apologize, and admit that they are buying cheap assets aggressively “near” the bottom (mavericks).
Asking tough questions will enable you to determine whether you’re talking to a fellow maverick or not. Don’t be afraid to sound stupid—it’s your money we’re talking about here and not your ego. You may want to stay with the big firm you’re banking with for convenience or choose to find a smaller firm more specialized in managing money for individuals. It’s much easier to learn about what motivates the professionals in a smaller wealth management boutique and discover whether or not their investment style is consistent with your own beliefs, and you will receive a far more customized level of service.”
Unfortunately, firms will continue to hire inexperienced folks for jobs that require experience. Inexperienced portfolio managers will succumb to the general malaise that infects the financial community in crappy markets; they won’t sell and worse, won’t buy when they should. Even if they are smart enough to know they should buy, committees dominated by elder managers with little investment acumen will bully them into docility.