I often get asked if I have an MBA, to which my reply is “No, but I like to hire people who do.” Indeed, Abacus has about a dozen employees with advanced degrees, six of them MBAs. We also have a handful of CPAs, a J.D. and even a Ph.D. in physics. All of these people are organized, have the ability to learn and communicate complex ideas in lay language, and have a great deal of knowledge.
The Problem of Overconfidence
The downside of an advanced degree, on the other hand, is that it can make us overconfident. The biggest mistakes I’ve made as an investor resulted from assuming I knew more than I actually did; for example, when a fund of closed-end bonds that I’d backed lost value almost as fast as stocks in 2008. I’ve seen others lose 75% of their net worth because they believed that a stock they owned was much more likely to go up than down, or felt that their industry knowledge would protect them. If you notice that you’re more focused on the upside than downside of a potential investment, take a step back and reevaluate.
Often, we look at past track records of investment managers to build our confidence, but unfortunately, the evidence doesn’t support this. Only 7% of the nearly 700 mutual funds that were in the top quartile as of September 2011 were still there two years later, according to Standard & Poor’s latest scorecard.
Asking Good Questions
I now believe the most valuable formal education teaches us how to ask good questions. As the 21st century unfolds, I want to continue working with highly educated colleagues and clients, especially those who’ve been taught to ask, “What else should I consider? Can I afford to lose my entire investment or earn lackluster returns if the future performance of this investment is mediocre or poor?”
