Look beyond the numbers. Investing is about people: the ability to gather good information, analyse assets and create investment strategies all depends on people. And some people are better than others. Very few, however, are so wildly talented that their stories define success in the industry. “My list of iconic investors reaches 10,” says Hugh Dougherty, head of manager research with Towers Watson in Australia. “They have some kind of Midas touch. They’re out there. They’re freaks.”
He’s talking about the legends of investment. Buffett, Soros, Graham. Those we’ve read volumes about, and whose views we pay close attention to because they have proven themselves, time and again, to be allweather outperformers. But there are plenty of great investors who haven’t achieved the outrageous success of the elite, but within the investment industry are regarded as masters of the game. It’s natural to them. Like it’s in their genes. Even here there are delusions of grandeur. “Great is a word that’s used way too much,” says John Sevior, head of Australian equities at Perpetual Investments. He uses one hand to count the number of investors he believes are truly great.
“On that basis, I don’t know if I’ve met any great investors, but I’ve read a lot about great investors.” In his 25 years as a professional investor he has earned a place among the best of his generation in Australia, and as part of Perpetual’s talentspotting recruitment program, he knows which characteristics to look for in an aspiring funds manager. There is no checklist. No guaranteed way of ascension. “I don’t think there’s a magic formula: that’s one of the beauties of the game,” Sevior says. But top funds managers share a set of intellectual and behavioural traits that are identifiable for asset allocators, gatekeepers and managers themselves. Chief among them is the ability to adapt and succeed. Dougherty says it’s more difficult to outperform now these days because “the complexity of what’s happening in investment markets today is so much greater than the ability of the star manager”. The financial crisis’ enduring lesson, he says, is that complexity is alive and well, and it’s bedevilled everyone. Even so, he still encounters brilliant investors. So who are these people, and why are they so good?
The money makers
There are many telltale indictors of investment talent, but David Paradice uses a practical rule of thumb to judge an investor’s potential. “I like to see in funds managers what I like to see in companies. No excesses. Total focus on what they do.” Investment consultants look for an idiosyncrasy that gives a manager an advantage. Be they a fundamental stockpicker, quantitative investor or debt expert, JANA Investment Advisers searches for an “outstanding characteristic,” says head of research Stephen Carew, which often varies from manager to manager. Frontier Investment Consulting notes which managers have an ‘edge’ over the competition. Allison Hill, senior consultant with the advisor, describes this is a “market nous over and above the general book smarts. “There are talented groups of individuals, but those that are exceptional make a small group.”