ZERO HEDGE

In 26 years on Wall Street, Nic Colas of ConvergEx, has worked for seven firms and reported to nine different people. His insights make up a highlight reel of things those people have told him which have stuck in his memory over the years (for better or worse) and seemed worth sharing with a broader audience. The most insightful: "Don't make this game harder than it has to be." From the same boss, the most motivating: "Someone is getting the information before you. Why don't I fire you and hire them?" On customer service: "What am I? A pimp? Get me a black car." And possibly the most important for someone who makes their living serving the investment community on the sell-side: "Do you know what it means when a dog shows well?"

I have had the good fortune to make a living on Wall Street for just over 25 years, and during that time I have reported to nine different bosses. All of them have held the reins with a light hand, but they all have at some point passed along some wisdom that has stuck in my head. Today's note is a compendium of their most notable sayings, with a brief explanation of the featured aphorism as well as a little context around them.

"We clean our trays."

Like many investment professionals of my generation, I started during the great mutual fund boom of the 1980s. My first job was in the customer service department of what is now one of the largest fund companies in the world, sitting in the mail room looking for checks from brokers to buy either a mortgage securities, small cap stock, or technology fund. That was the extent of the offering at the time, which gives you a sense of how early the firm was in the development of its mutual fund offerings.

My first boss came out of the transfer agency world, and he spent most of his time on the road visiting the operations departments of our broker customers. He was what we would now call an "Obsessive-Compulsive Disorder" neat freak, and the first thing he would do when boarding a plane was to check the cleanliness of his tray table. If it wasn't spotless, he would spend the rest of the flight worrying that the requisite airplane maintenance hadn't been done properly. His unofficial motto for our operation was "We clean our trays." We managed to stop him from putting that on the corporate t-shirts, thankfully. The idea that little things matter did, however, stick with me.

"Do you know what it means when a dog shows well?"

After three years tending to mutual fund shareholders, including the 1987 crash, I went off to business school with an eye to getting a job in stock research. At the time, the best sell-side firm for this discipline was the old Donaldson, Lufkin and Jenrette. So in my second year of business school I ended up at DLJ's offices in Manhattan interviewing with their head of equity sales.

I asked him what he looked for in a research analyst. I expected to hear quantifiable attributes like deep fundamental understanding of their industry, or a real edge in accounting and financial modeling. Instead, he asked me if I had ever been to a dog show. I said yes. He then explained that he was looking for people that "Showed well" – basically energetic presenters who enthusiastically engaged the client base. I still embrace that message to this day, even though the canine comparison is a bit off-putting, to say the least. I never did get to work at DLJ – they ended up not hiring the year I came out of business school. But this quote is too good to pass up, so I include it here.

"What am I? A pimp? Get me a black car."

My eventual employer was First Boston, where I covered the auto industry. One of the dirty secrets of the sell-side analyst world is that you spend considerable time tending to corporate management while carting them around to see clients. Even the most laid-back CEO or CFO still likes to be treated well, and I learned that this means wildly different things to different people.

While traveling in Milan with one management team, the limo company sent us an old Bentley sedan in shining pearlescent white. The CFO took one look at it, and asked if I thought he ran an escort service on the side. He didn't like the car, and even after a long flight from the States he was unwilling to ride in a conveyance unbefitting a U.S. corporate chieftain. Half an hour and several frantic calls later, an ancient black Lincoln showed up (Lord knows why a Milanese car company has such a car) and all was good again. But the lesson of "Know your customer" is a deep and occasionally unfathomable river, to be sure.

"You will make a lot of money, but you'll be very unhappy."

When I told my last boss at First Boston that I was going to a highly successful hedge fund, he shook his head like I was a puppy who had just soiled an expensive carpet. "You won't be happy there. You are essentially a happy person. You'll be around very rich guys who are miserable all day long. You are going to make more money than you can imagine, but you will regret this decision."

At the time I could not fathom the notion that money and happiness were anything but happy bedfellows. But he was more right than wrong. I learned more about the markets and investing in six months in my new job than I had in nine years as a sell-side analyst. At the same time, the all-consuming nature of the job fulfilled his prophecy. Your job has to fulfill a whole range of personal requirements as well as pay the mortgage.

"Don't make things harder than they have to be."

"Early is the same as wrong."

"I can make more money; I can't make more time."

"Some is getting this information before you. Why don't I fire you and hire them?"

All these quotes come from the same secretive multi-billionaire hedge fund manager who was my next boss. What he taught everyone in the room was that information is only investable when it comes early and is different from what the market believes. In that respect, managing money is a simple task. Making this mandate more nuanced is a waste of time. And more time is the one thing even a billionaire cannot buy. Truly actionable information is hard to get, and it is the only job of anyone interested in running money.

"Dentist and doctors are lousy investors."

After the hectic pace of the first hedge fund, I went to a second one, managed by a highly pedigreed value manager. One of the deep dark secrets of the hedge fund world is that every manager needs two edges – how to manage money effectively, and how to get investors whose needs fit that investment approach. Easier said than done, that second one, and in many ways just as difficult as the first. His target audience was doctors and dentists, for he found that even the most accomplished medical groups were full of woefully incompetent investors. My boss was not a smooth presenter for all his investment acumen. But he came across as someone you could trust, and that was enough for his target investors.

The lesson here is that success comes in many forms. Every hedge fund manager of any note has hundreds of meetings with potential investors on their way to their first $1 billion in assets under management. The clever ones know that there are pockets of capital – some of them very deep indeed – that go under-serviced. Who needs the smart New York based fund of funds when there is a successful dental practice in Islip with $25 million to invest or a group of dermatologists in Houston with $100 million burning a whole in their pockets?

"Everyone can be a real estate agent for one year. It's the second one that kills them."

This last one comes from my current boss, and I am still surprised as to the number of circumstances to which this aphorism applies. His point is that many businesses get off the ground with one trick. For a real estate agent, it might be combing through their personal contacts for likely customers. When they exhaust that pipeline of customers, likely with some early success, they have nothing in the bag to sustain the business in year two.

The underlying problem is one of competitive advantage, the most underappreciated challenge in everything from stock analysis to personal development. Developing an edge as a company means finding your best advantages, honing them, communicating them to everyone from employees to investors, and forgetting everything else. Can't make more time, as the hedge fund manager boss told me. As an individual, the lesson is essentially the same.