Out on bail, fresh out of jail, Consigliere dreamin' . . .
Just kidding, I haven't been in prison. I've been locked in my apartment working on a writing project, a real grown-up one that I may even get paid for. But I miss my blog and speculate that by continuing to write for it it will help me write the other thing. Practice makes perfect. So expect more posts.
Here's a little one, more for the personal file of this self-styled "investor talent scout": Fortune magazine recently devoted nearly an entire issue to Steve Jobs of Apple. It featured an interview with famous venture capitalist Michael Moritz, who wrote a book about Apple a long time ago when he was just a reporter for Time. As I've blogged before, I like to study successful venture capitalists because they are supposed to be experts in spotting human talent, a skill that's relevant to investment manager selection. Moritz was asked about this and here is what he said:
How has your study of Jobs and Apple helped you in your job as a venture capitalist?
Extraordinary, rare companies -- like Apple in those first two or three years -- have some common traits. The individuals will be different, the businesses will be different, the decade will be different, but the purpose, the drive, the sense of mission, the intelligence of the founders -- those will be common. If you have been around the start of success, it's far easier to recognize it again.
I think the last sentence is key. If your job is to recognize something--e.g. a young company that's about to be very successful--what makes it far easier is not necessarily the ability to divine the future of a product or be a genius or something complicated like that, but simply the experience of having already observed that something before. They used to think that chess grandmasters had a special kind of intelligence, a way of seeing many moves ahead that others lacked. But over time, people who study chess intelligence have de-romanticized that opinion, and now think that skill at chess is a more simple matter of having studied and memorized positions and how they were played out, and having the ability to recognize patterns so that, when a novel position is confronted, the grandmaster can relate it to one he (or she) has seen before and knows the "answer" to. Moritz is saying that the experience of observing the young Steve Jobs in action has by itself made it far easier to recognize what a successful company founder looks like, even though no founder is exactly the same. I think the same thing applies to successful investors--the experience of having observed and studied them in action makes it easier to evaluate young investment talent. I've never seen Warren Buffett in action but through study I've come about as close as possible to it, and when I meet with a new investor I'm simply asking myself "how close is he to Buffett"? I did have the good fortune to work for a hedge fund manager with one of the best long-term risk adjusted records ever, so I have seen him in action, which helps me know what to look for in a successful young hedge fund manager.
By the way, a similar logic applies to the craft of investing itself. Warren Buffett is a genius in terms of IQ and computational ability and all that, but a large part of his success comes from that fact that he's studied and memorized more business and investing "chess positions" than anyone else and knows how they've played out. When he confronts a new position, then, he can relate it to one he's seen before and knows the "answer" to.