My guest today is Tim Koller, a partner in McKinsey’s Stamford, Connecticut office, where he leads a global team of corporate-finance expert consultants. Tim has served clients globally on corporate strategy and capital markets, mergers and acquisitions transactions, and strategic planning and resource allocation. For over 90 years, McKinsey & Company has helped corporations and organizations make substantial and lasting improvements in their performance. Through seven editions and 30 years, Valuation: Measuring and Managing the Value of Companies, has served as the definitive reference for finance professionals, including investment bankers, financial analysts, CFOs and corporate managers, venture capitalists, and students and instructors in all areas of finance.
The topic is his book Valuation: Measuring and Managing the Value of Companies.
In this episode of Trend Following Radio we discuss:
Recession and Recovery
The first half of 2020
Valuation: Measuring and Managing the Value of Companies 1st Edition
George Anders is a New York Times best selling author and journalist who has written for national publications spanning over 30 years. He shared a Pulitzer Prize for National Reporting in 1997, while at The Wall Street Journal. Michael is a huge fan of George’s classic, “Merchants of Debt” published in 1992. His most recent work is “You Can Do Anything: The Surprising Power of ‘Useless’ Liberal Arts Education.”
“You Can Do Anything” shows how humanizing technology has become one of the fastest growing jobs. 6% of technology jobs are programmer based with the other 94% being human relations based. Social media, branding, psychology, etc.–they have nothing to do with coding but are just as essential to running a successful technology based company. George gives one example of an exceptional sales person he met who happened to be an English major. He sat beside her and witnessed first hand why she was so exceptional at selling – it was how she talked to people and fostered relationships with customers over the phone. You don’t need a business degree to sell. You just need an intuitive social way of talking with people and making your customer feel comfortable. Building a successful company takes a combination of tech savvy and psychology.
Having the confidence and audacity to take a risk and reach out to some of the highest achievers in a field of your interest could be your greatest chance at a dream job. To be the best you learn from the best and you won’t get very far if you are shy about it. George also stresses that no matter what your major was in college (or if you even went to college), it is important to know that you can go in any direction with a career path. Michael and George end the podcast talking about climbing Mt. Fuji. George describes the gorgeous landscape, scenery, and a mistake he made that anyone following in his footsteps should avoid.
Happy new year and please enjoy my all day 11-hour compilation covering 3 of my favorite guests. A timeless reminder to start 2018 the right way! And if you don’t want to listen all the way through then enjoy my opening intro rant!
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I’m a big fan of your podcast, and want to start trend trading. I’m a UCF student and actually just met Toby Crabel as he did a private meetup with the young investors club at UCF. I’ve been trading since January, but just blindly trading. I’m going to quit my Internship at Lockheed starting January to take the risk of being an independent trader for my last semester before having to start to pay off my student loans. Hopefully you can show me the right steps to being a successful trend follower.
Robert Carver got his start in finance working at trend following firm AHL in 2001 during his final year of college. He was introduced to quantitative trading while at AHL and for the first time began thinking of finance in a systematic way. He later went back to AHL, working there from 2006-2013. His newest book is “Smart Portfolios: A Practical guide to building and maintaining intelligent investment portfolios.”
It took a lot of research and digging for Robert to decipher which financial tools available to traders were appropriate for him. He knew he was not the only trader with this problem so he decided to write a book laying out what he had found through his research. Robert gives actionable tips and guidelines for others who may need help finding what trading instruments are right for them. Robert also wanted “Smart Portfolios” to be a book for the average investor. He wrote it in a way that is not over complicated. Any trader, new or professional, can pick it up and find it useful.
Robert bases portfolio selection around three questions: 1. What should you invest in? 2. How much of your capital goes into those investments? 3. Do you make changes to your portfolio along the way? Whenever he receives questions from people, those questions usually fall into one of the above categories. There is never perfection when trying to predict how a portfolio will perform but Robert stresses that if you start your investing answering the above questions, you will be on the right track. After the right portfolio and financial tools have been selected it’s necessary to understand different types of returns. Michael and Robert finish the podcast discussing differences between geometric and arithmetic returns.
In this episode of Trend Following Radio:
Warren Buffett trading
Expected average performance
Leveraging a portfolio
Luck vs. Skill
“Most people probably spend much less time thinking about their portfolio’s than they do thinking about getting their car fixed.” – Robert Carver
Michael throws Jeff Bezos, Amazon and trend following into a giant melting pot. Jeff Bezos is a trend following trader – along with venture capitalists, Hollywood, the MIT black jack team, Warren Buffett (to some degree, yes), and many more.
Michael notes an excerpt from a document written in 1983, gleaning wisdom from Richard Dennis and Bill Eckhardt. Not relevant today? Think again. Richard Dennis makes it clear in the document that you never know where the next home run is coming from – missing a big payout is just as bad as taking a loss. Are you guilty of forgetting about big opportunity when trading? Do you focus too much on your downside? Most unfortunately get fixated on the downside and ignore the positive unknown.
Michael also notes an article written by Li Jiang titled, “What I Learned From Reading Every Amazon Shareholders Letter.” Li lists key lessons he has pulled from shareholder letters: type I and type II decisions, end each day of business like it is the first day, always operate like a hungry upstart, only the paranoid survive, make small bets because you can’t predict anything, move fast and break things, and if you are offered a seat on a rocketship – don’t ask which seat, just get on. Jeff Bezos’ words dovetail seamlessly with trend following philosophy. Thinking outside the box is essential to making great things can happen.
In this episode of Trend Following Radio:
Type 1 errors/decisions
Type 2 errors/decisions
Trend following is dead?
“You never really know which market is going to be the one that is the big payoff.” – Richard Dennis
“If you are offered a seat on a rocket ship, don’t ask which seat, just get on.” – Jeff Bezos
Mark Kritzman is a Senior Lecturer in Finance at the MIT Sloan School of Management, founding Partner and Chief Executive Officer of Windham Capital Management and serves as a senior partner of State Street Associates. Mark has written six books, his latest titled “A Practitioners Guide to Asset Allocation”.
Mark began his career on Wall Street in 1974 and was immediately drawn toward systematic trading. At a time when there were not many quantitative traders, he was affectionately titled a “token quant” within his company.
Over the years Mark has been an advisor to many funds. While working with various companies it became clear fund managers were mixing how they invest with how they would choose asset classes. He decided to break down the most basic and logical ways of organizing the investment process. What are some components of an asset class: stable composition, be investable, internally homogeneous, externally heterogeneous, raise the utility of a portfolio, and you should be able to access it in a cost effective way. From there, depending on a persons risk, different combinations of asset classes would make up a portfolio.
Being in the game as long as Mark has, he has been able to witness the enduring and turbulent nature of markets. He saw one silver lining come out of the 2008 financial crisis – it provided a context where investors could go back to the basics of trading, and in particular, recalibrate how they manage risk. Mark finishes the podcast talking fixed weight portfolios, Peter Bernstein on scaling portfolio risk, dynamic asset allocation and explaining Samuelson’s Dictum.