In his August 2000 Journal Entry, Michael Burry concludes that the competitive advantage rests with those investors who can go where inefficiency reigns and risk is uncoupled from reward — beyond the quarterly and/or yearly performance mandate. Here’s an excerpt from the entry:
Before I get to today’s pick, let me take a moment to respond to the recent suggestion that as a 29-year-old, I simply possess long-term investment horizons. Hmmm.
Living in Silicon Valley proper, I could write volumes in response. Suffice it to say that the twentysomethings I meet are not often interested in my 10-to-20-year analysis horizons.
Although you may trade frequently, the wind should be at your back. If all else fails, a long-term hold should pull you through. And the only consistent, prevailing wind in the investment world is that of the present value of future cash
flows.
As a practical matter, professional investors are absolutely handcuffed by short-term quarterly expectations. That’s why I don’t run a mutual fund — I need control over what sort of investor becomes a client. Of course, financial planners often impose the same quarterly bugaboo on their private money managers.
I stay away from those as well. Focusing on quarterly targets is not a method for removing undue risk. On the contrary, it throws the portfolio manager in with the cattle call that is modern investment marketing — even though increasing firm assets is of little direct benefit to an individual client — and by default places the portfolio manager’s
operations in the “risk equals reward” paradigm.
The competitive advantage therefore rests with those investors who can go where inefficiency reigns and risk is uncoupled from reward — beyond the quarterly and/or yearly performance mandate.
You can read the entire journal entry amongst a collection of Burry’s MSN Money articles here:
Michael Burry – Journal: August 7, 2000
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