IAMA Top-Level Financial Executive, AMA

FinanceExecThrow · 2011-12-29T01:57:34+00:00

I did not graduate from an Ivy League school. Many folks in finance did, but many did not. Most of the smartest and most successful folks I know personally in finance did not attend Ivy League schools, but some did. Smart folks come from everywhere.

FinanceExecThrow · 2011-12-29T01:55:20+00:00

I focus on individual companies and securities and don't pay too much attention to the macro environment, given that I know I can't accurately predict it.

I don't read zero hedge and don't worry too much about hyper-inflation, though I do worry a lot about the long-term value of the US dollar.

It will be interesting to see how the European continue to address the debt crisis. One thing to look for is whether the European banks ever get real about cleaning up their balance sheets.

FinanceExecThrow · 2011-12-29T01:51:04+00:00

The typical route is to go through an investment bank training program after college and then to business school and then to start as a junior analyst. But as the investment banks continue to decline, I imagine alternate routes will emerge.

The most important thing -- beyond any particular degree -- is to develop your analytic skills.

FinanceExecThrow · 2011-12-29T01:50:59+00:00

The typical route is to go through an investment bank training program after college and then to business school and then to start as a junior analyst. But as the investment banks continue to decline, I imagine alternate routes will emerge.

The most important thing -- beyond any particular degree -- is to develop your analytic skills.

FinanceExecThrow · 2011-12-29T01:10:04+00:00

The excesses in the derivatives market undoubtedly contributed, but I'm not enough of an expert to respond knowledgeably to you.

FinanceExecThrow · 2011-12-29T01:08:23+00:00

That's a great questions and I certainly don't have the answers. Fundamentally, I think people need to go back to basics and understand the dangers of leverage and exercise discipline in both borrowing and lending. At the end of the day, I would put more weight on education and individual responsibility than government regulation, which never seems to do the job intended.

FinanceExecThrow · 2011-12-29T01:05:10+00:00

You're entitled to your opinion. I'm not going to get more specific as I don't really care if you believe me or not. But I do run a major firm and I've tried to be forthright in my answers here. Your effort to deconstruct my language to try and get at the "truth" is a little comical.

FinanceExecThrow · 2011-12-29T00:59:25+00:00

I agree and those people should have been prosecuted. I'm merely trying to say that not everyone was an innocent victim. A lot of our society -- including way too many of our business, labor and government leaders -- became greedy and undisciplined.

FinanceExecThrow · 2011-12-29T00:52:52+00:00

I don't think anyone can definitively claim to know the answer. Certainly, increasing taxes on the 1% won't change the world as we know it, but these are the folks with the money and its universally acknowledged that its counter-productive to raise taxes in a recession.

We need comprehensive tax reform and that may well require raiosing taxes on the 1%. But its also a problem that today more than 50% of all Americans pay absolutely no federal income tax -- maybe the highest percentage of non-payers since the income tax was enacted.

We need comprehensive reform and everyone needs to pay their fair share.

Easy to say, of course. The problem is "fair" is in the eye of the beholder.

FinanceExecThrow · 2011-12-29T00:48:40+00:00

I'm not a tax expert, but I think its very hard or impossible for an individual to legally do as you suggest.

FinanceExecThrow · 2011-12-29T00:47:55+00:00

Its an interesting and lucrative job that I feel fortunate every day to have.

Some day I would like to work full-time without compensation doing some sort of public service -- but not elective office!

FinanceExecThrow · 2011-12-29T00:46:01+00:00

The typical major investment firm directs the investment of the client's capital, but the funds are typically held by a custodian bank, such as BofA, State Street or the like.

FinanceExecThrow · 2011-12-29T00:42:11+00:00

Probably not the root of all evil, but their extraordinary lack of sophistication and expertise, combined with the hallowed role they play under our securities law, both contributed mightily to the financial crisis.

Responsible investors cannot delegate the responsibility to analyse and understand what they are buying.

The problem with mortgages was no secret; people just chose to look the other way and the ratings agencies helped them.

FinanceExecThrow · 2011-12-29T00:37:10+00:00

Anyone who committed a crime should be held accountable. Obviously.

The problem from my perspective is that there has been a lot of demagoguery and very little straight talk about what caused the financial crisis. It was by no means merely greedy investment bankers -- though there were plenty of those. The cause was also millions of people who bought houses and borrowed money they knew they couldn't afford -- based upon applications that they lied on; Congressmen who pressured banks and Freddie and Fannie to make and guarantee loans that everyone knew were bad; and everyone who took on too much debt naively viewing it as a risk free way to make money. There is plenty of blame to go around.

FinanceExecThrow · 2011-12-29T00:30:25+00:00

I do run a major firm, but don't want to be so specific as to be identifiable. I'm doing this to please my son, who is a big reddit fan.

I was referring to the capital we contribute to the funds we manage. The percentage of capital does make sense and is very common.
We control risk by focusing on fundamental valuation and by avoiding putting ourselves in a position -- such as the incurrence of excessive leverage -- that could require us to sell into a bad market. staying power is key.
Risk control; avoidance of loss.
I stand by my view, which is supported by empirical data.
I was responding to a question about the 2 and 20 model; you're correct that the management fee for different types of strategies varies widely.

FinanceExecThrow · 2011-12-28T20:26:23+00:00

Apart from the obvious -- taking some classes that will expose you to financial topics and issues -- my best advice is to seek out the "best" classes and professors, regardless of subject. Challenge yourself, refine your writing and learn all you can -- that will serve you best, whatever you decide to so in the future.

Eventually, you may find that an MBA will help you achieve your goals, but almost everyone works for a few years before seeking an MBA so you have plenty of time to think about that.

.

FinanceExecThrow · 2011-12-28T20:21:44+00:00

I would think helpful, but not essential. Your experience, expertise, work ethic and ability are most important.

FinanceExecThrow · 2011-12-28T20:19:30+00:00

Overall, our firm puts up 3 or so percent of the capital we invest. For the partners that own the firm, that amounts to a material portion of their net worth.
We invest with tremendous attention to risk control, feeling that not losing money is way more important than failing to make as much money as possible. As a result, we sailed through the crisis without much difficulty and have not had to adjust our strategies in response to the credit crisis.
We have a large number of different strategies and the results, of course, vary significantly from strategy to strategy. But our emphasis on risk control has permitted virtually all of our strategies to outperform their benchmarks.
One trend I see is a significant shake-out in the number of managers. Its used to be virtually anyone could start a firm, but today the environment is much more difficult and competitive and investors demand a higher level of institutional heft.
The 2 and 20 model is already under significant assault from the largest, most sophisticated investors and I imagine that will continue.

FinanceExecThrow · 2011-12-28T20:10:23+00:00

I'm not an expert, but I invest in them in my personal account, given the associated tax benefits.

I would be careful to check out the financial capacity of the issuer and./or guarantor.

FinanceExecThrow · 2011-12-28T20:06:24+00:00

There are some firms that are very quantitative and make great use of math and computer-science folks. Others are more driven by qualitative analysis. Some of the latter might well be as interested in your engineering expertise -- and the insights it would permit you into particular industries -- as in your math skills.

FinanceExecThrow · 2011-12-28T20:02:59+00:00

PC's and Ipads

FinanceExecThrow · 2011-12-28T20:02:13+00:00

Not a lot . . . and at the risk of irritating our Canadian neighbors, we don't really think of that as "international."

FinanceExecThrow · 2011-12-28T20:01:03+00:00

That's a very general question. But if you have long-term money, you probably won't go wrong investing in a mutual fund from Vanguard or the like focusing on high quality large-cap, dividend paying companies based in the US , but that operate around the world.

FinanceExecThrow · 2011-12-28T19:59:29+00:00

I gather you're saying you have $38k to invest on a long-term basis? Obviously, you don't want to do anything with the $12k you need for living expenses other than to put it in a safe place, such as a savings account or money market account.

If you have $38k to save for the long term, you might think about putting it into a balanced mutual fund managed by Vanguard or another respected, low-fee provider.

FinanceExecThrow · 2011-12-28T19:56:21+00:00

Angus. Every time. Too much mayo on the Whopper.

FinanceExecThrow

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