As an entrepreneur, I mourn the end of the era of US investment banks. I am sorry that these venerable institutions were first taken over and then blown up by their own traders. Traders should have built their hedge funds and not gamble with the whole investment bank. Entrepreneurs are now left with commercial banks to deal with. These banks have less understanding of our businesses. Here´s a debate by my buddy Brent Hoberman on this issue in the FT.
Most investors who trade stocks and other securities trade frequently. I don´t. I am your average broker´s nightmare. I probably do around 1 trade per month. This year I decided to share my portfolio in my blog. And it has not been a bad year.
In a post I wrote on May 4th I told my readers what I thought was going to happen with the dollar. I said that Europe was in worse conditions then what it looked like at the time, and that the US were in better conditions then what it looked like at the time. That while the dollar was in a seeming freefall that it was going to turn around. For my own portfolio I reversed a 7 year trend and started moving away from the euro into the dollar. And while I haven’t done any oil related transaction, last July I wrote in my Spanish blog that oil prices were absurdly high and they had to fall.
I started sharing what I was doing with my portfolio in early 08 with a post in which I recommended buying Apple stock (on January 23rd). Apple stock had fallen from $202 to $134 per share in less then 60 days and I loved the company, I bought shares and I told my readers I had done so.
So my two trades of the year until now were shifting my liquidity into dollars and buying Apple shares. Other than that my money was mostly in hedge funds that are down around 8% on the average this year. Bad but not as bad as the markets. And here´s another 3 trades I did. I bought TEO (Telecom of Argentina) mainly because I am Argentine and don´t think Argentina is going to hell again. I bought Citigroup and Bank of America because I lived in the States for 18 years and I can´t imagine the two leading US banks going to hell. But if you look at the stock performance of C and BAC you would think that everyone else seems to think they are going to hell. So I bought those shares. I also have bought shares of Cresud (CRESY) a very large landowner in Argentina for the same reasons. They trade as if fertileland will be worthless something that in this world of still very high food prices I don´t think will be the case.
I should also note that my investments are very long term. In 2001 when I switched to the euro I kept with it until 2008. The Apple, Citigroup, Bank of America, Cresud and Telecom of Argentina stock I’ve bought I also plan to keep for quite some time. And overall I don´t own in all these equities combined more than 5% of my net worth so until this year I had no stock exposure and now I have very little.
I was thinking about people who have made significant amounts of money and their success strategies. I was then comparing those strategies to animals and their offspring and their success strategies. And this is what I found.
If you go through the list of the richest people in the world and take out the heirs focusing on self made (mostly) men, you would see that you can divide wealthy individuals into two main strategies of money making. One is the entrepreneur who has built one or very few businesses, as for example, Michael Dell or Bill Gates. The other one is the trader, who has not managed large organizations and has made thousands of investments in which good ones exceed bad ones, example: George Soros. These individuals have very different strategies and yet when measured by money achieved they have similar results: they are all among the richest people in the world.
Now let´s shift to the animal kingdom. In the animal kingdom the same two strategies appear. Mammals have very few offspring in their lifetime, even the most prolific mammals cannot be compared to any insect, for example, in the amounts of offspring that they have during a lifetime. In my analogy, the entrepreneurs are the mammals and the traders are the insects. Mammals as we know, care for their newborn, feed them, protect them and stay with them for a significant part of their life. Mammals cannot afford many mistakes (dead offspring) as their genes would not prevail in future generations if they did. Insects however frequently accept failure, they play a game of chance, lay thousands of eggs and leave hoping that at least more than a few survive. Interestingly both strategies work and yet in terms of personality they make very different type of animals…traders and entrepreneurs I mean.
When I look around at the people I know I see this division. There´s the traders, and there´s the entrepreneurs. Both can be as successful, but their lifestyles and personalities are completely different. Traders tolerate failure as part of their daily routine. Traders base their success in the frequency of transactions. Very successful traders make an incredible amount of trading decisions. Entrepreneurs on the other side make very few decisions, but they spend much more time thinking, studying, comparing, contrasting, analyzing. Entrepreneurs can´t be as frequently wrong. They don´t have too many chances to pass on their genes.