Monday, January 30, 2006

I always wanted to be a stock analyst when I grew up.....

....until last year.

I love following probably came to my blog hoping that I did not write another post about a stock....but I write about companies because thats my sport.

I always wanted to be a stock analyst. I've always thought it'd be fun to get paid to follow a company. To me it'd be like getting paid to play football, but instead of my knees hurting, my brain would.

So I always thought interviewers would think like I do. I was wrong. I thought, hey I just need to show the interviewer my performance, and justify my stock decision, they have got to hire me. I thought, hey I'm putting my money where my mouth is, and have a documentable track record. That has to be better than some kids out of school who studied this stuff. I was wrong. I was really wrong.

It turns out that to get a job as a stock analyst you need to go to school for finance and get a CFA. So I spent a couple years pursuing my MBA and studied for the CFA. The more I studied the more I realized why the Wall Street Journal has a section that picks stocks by throwing darts at a dart board, and that strategy does as good as the stock analysts. The more I studied the more I realized why mutual fund managers and most stock analysts can not beat the stock market.

As an undergrad I took a music class. The professor was ripping on all 500 students in his class. He said we were a part of assembly line education. At that moment I realized why I didnt want to go to school for business. I realized that there are millions of finance, economics, and accounting students that graduate each year. They learned the same thing, so they look at the world and problems the same way. I didn't want that problem.

Stock analysts and Mutual Fund managers tend to not beat the market because they were all taught the same thing! They were all taught the world is flat....and they are mostly all wrong.

Here's the deal. Here's what I learned. By learning this I can't get a job doing what I love. Ignorance is bliss.

The stock market is a market. Rational does not move markets. Ever. Emotion moves markets. Emotion drives stock prices up and down until fundamentals catch up. All these formulae that I learned studying for the CFA estimates future stock price on a number of factors. They are simple and common sense formulae. But they leave the most important variable out of the equation: They leave emotion out. They don't factor in that people are buying/selling stocks.

All of these formuale will work, and are valid, if computers were placing trades, instead of people who have hunches.

No interviewer has asked to see my portfolio performance, only my report cards (going back to high school report cards!). So noone will hire me because I know what they don't. I know that its not what school you went to, or what grades you got in high school, or what major you had.

I know that it's about looking at the world from angles that everyone else misses. Because the world is not flat. The masses are always wrong. Always.


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