The craft of investing allows for various formulas and approaches. However, even when discussing assets as different as real estate and venture capital, there are many common elements essential to success.
David Rubenstein is the co-founder of The Carlyle Group, one of the world’s largest private equity managers, based in Washington. His extensive professional career in financial markets, paired with a rich network of contacts, has enabled him to write an invaluable text that features interviews with some of the most prominent investors in different types of assets. The book, entitled How to Invest, consists of a series of conversations that explore the lives of various investors, from the origin of their interest in the profession to the trajectory of their careers, their investment principles, and their accumulated expertise. The result is an enjoyable volume that can be read out of sequence, to focus on those parts of the market that may arouse greater interest. The book is brimming with good advice, observations, and principles for successful investing.
Based on my reading, I would like to highlight some common threads that run throughout the book’s chapters. In every case, we encounter hard-working individuals, passionate about their jobs, with a certain gift (interest) for numbers and remarkable analytical capacity. In many cases, these are figures who began investing at an early age, with clearly defined career paths from the outset. Another common element is reading and the intellectual curiosity to continue learning, often about interests that go beyond the field of investment. These investors are confident in their own way of thinking; they have strong opinions based on their own strict criteria that may conflict with conventional wisdom or the average market viewpoint. Ultimately, everyone makes mistakes; the differentiating factor is the ability to overcome and cope with these mistakes and learn from them.
This last aspect is one of the most telling in the book, with truly incredible examples from Ray Dalio, Larry Fink, and Jon Grey. Dalio’s case is perhaps the wildest. The man who would later become CEO of the world’s largest hedge fund, Bridgewater, had a truly low moment in the early 1980s when his main bet went horribly wrong, almost leading to bankruptcy. He was forced to borrow USD 4,000 from his father to support his family. Dalio acknowledges the pain and suffering of the episode that, at the same time, created a moment of growth, allowing him to lay the foundations of what would later prove to be one of the strongest and most predictable risk management systems in the industry.
“The most important principle that helped me build Bridgewater is ‘pain plus reflection equals progress’. I learned the hard way [referring to his bet against the stock market in 1982] that pain is a great teacher”. --Ray Dalio
Larry Fink’s case is also exceptional given its extremities. In this instance, Fink went from being the youngest member on the Management Committee at First Boston to being dismissed four years later after losing money for the bank and its clients because there was no proper risk management system in place. Less than two years later, Fink founded BlackRock, which is today one of the three largest asset managers on the planet. What we call resilience these days is a fundamental wherewithal to develop a successful career in the markets.
The book contains several other valuable anecdotes about the importance of psychology when making investment (and other) decisions, the functioning of markets, and much more. It is a wonderful resource for both small savers and experienced managers.
[On how to invest successfully] “Read everything you can about investing and other relevant topics. Don’t limit yourself to newsletters and articles; read books, they really focus your brain and have a lasting impact. There is no such thing as reading too much”. --David Rubenstein
Luis Torras,
Wealth Management director
