I went to Lipper’s Hedgeworld in June 2008 and was pleasantly surprised. Donald Putnam of Grail Partners was the keynote speaker. I was fascinated with his perspective on the market, the industry, and people. He was engaging with a great sense of humor.
My first interview with him is as follows:
DP: It is the nature of the talent that the most talented are many times more talented than the slightly less talented. Bill Gross or Larry Fink, two examples you are familiar with, are not five times more talented than the next person, they are ten times more talented than the next person. They are not just more talented, but differently talented. They aren’t just working harder or just a little smarter. They have a different ear for the music, a different way for interpreting, a different way of reacting.
The typical paradigm is to think of talented business professionals in terms of people who are smart. We might be a lot more successful if we looked at people who are talented in terms of how artists are because they are often tortured by their talent. They are often incompetent in other areas, terrible with people, have fairly dramatic flaws.
But the most talented of them can no more help doing what they do than can any other artist help being an artist. They are not employees, not professionals, they’re not doing a job, so they don’t behave like normal people.
I think that’s true of hedge fund managers. The conventional wisdom is that this is portfolio management in another financial context and it’s not. It’s a particular perverse instinctual for talent to foresee how things will workout that most people don’t have. The guys who do have it, make it work in spite of all the conventional wisdom.
EN: What is the unique talent?
DP: I see a common behavior pattern, whether you are talking about extremely talented designers, business people, artists…all of them share one critical attribute which is things are that opaque to others are intuitively obvious to them. They draw different conclusions from the same facts and to some extent at the root of their success is alienation from other people and the way other people think. In the investment world we call this contrarian thinking.
The ability to be contrarian is to differ with you. How can I differ with you if I identify with you? You have to be, to some extent alienated to take a different perspective. And I think these guys generally couldn’t care less if their perspective is different. They don’t particularly enjoy being the dissonant voice, but they don’t mind it either. So they have a kind of almost semi-autistic alienation.
The very best investors are tone-deaf to the consensus. They do not hear or see the consensus view, they form their own view, their own intuition as to how the future will play out and are often willing to act on that. Sometimes they get positive reinforcement, they like to be swimming against the crowd. Not that they enjoy the confrontation with other investors, or confrontation against the consensus, some do some don’t, in fact a lot of investors, the best investors will invest their portfolios in a very specific and personal way. If you make them defend what they do or try to change the consensus because of what they do, they have no appetite for the debate.
Warren Buffet is a little bit of an exception in this regard, he is happy to teach why he believes one is better than the other. But many great investors don’t care, they don’t care if you learn it and if they communicate it.
It’s a unique perspective on life. They invest in terms of the conditions that create a certain economic outcome and the ebb and flow of arithmetic; in terms of the interactions of big economic systems, companies and portfolios with societies and particularly currencies, inflation rates and they hear that music, they hear that symphony.
They don’t hear or relate to the people who are playing those instruments, to them the first violin is not a first violinist. It’s just a first violin, all they hear is the music. They don’t have any empathic relationship to the violinist. And that alienation is in part at the root of great investing. Because the consensus is almost always wrong. It maybe wrong is a small regard and in a large regard, but if you go with the consensus, you are almost always wrong.
In Wall Street terms, the financial world has two faces, one face is outward to those who are its clients. And conformity is prized in that world. Conformity, consistency and so on. But there are no great talents any more in that side of the business, the old Merrill Lynch thundering herd, way to sell.
In a perfect world the men and the woman all dress alike, they use the same sales techniques. What you are looking at is the industrial revolution idea of the assembly line brought to the financial services. OK, that was done 100 years ago by Merrill Lynch, more than a hundred years ago and it’s working just fine and it works on a large scale. And it works on a large scale with retail channels of distribution and on a small scale within institutional channels of distribution.
On any street at 7:00, or 8, or 9 at night you can spot the equity salesman, the bond salesman, the institutional salesman, the various kind of salesman that exists. The closer you get to investment banking and investment management the closer you get to outcome driven success, as opposed to process driven success. And if you live and die by the outcomes, whether you’re an investment banker contemplating a merger, or an investment manager establishing a portfolio the more you are driven by the outcomes as opposed to the process the more you are driven by contrarian thought. Contrarian thought requires some kind of alienation from the consensus.
Differentiated by the consensus, differentiated by how they react to failure, the conventional 99% of the world doesn’t like to fail, the One Percent enjoys failing if its in the pursuit of outcomes they can enjoy identifying with. They aren’t’ emotionally involved with outcomes. They want validation of their unique perspective,
Steve Jobs was more emotionally rewarded by the consumer reaction to his Apple iphone that to the particular economics. That sense of the outcomes is similar to the top hedge fund managers.
Copyright 2007 Ev Nucci
ev nucci
3 Comments
July 19, 2008 at 6:23 pm
Great post. It is interesting to hear his viewpoint. I think he is correct that in finance there is a certain born trait that cannot be taught in some of the best investors.
July 19, 2008 at 7:18 pm
Matt, he is a fascinating gentleman with a brilliant perspective!
February 18, 2010 at 5:07 am
Thanks for the interview with Donald Putnam. I liked to read it. I think he is a very interesting person. Some of his ideas will take into consideration!