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Address to incoming LBS Masters in Finance class

On the 16th of August, I had the pleasure of delivering an address to the incoming Masters in Finance class at London Business School. The transcript follows.

Ladies, gentlemen, believers in the efficient markets hypothesis and other worshippers of false gods, good afternoon.

On the 2nd of November 1932, Major GPW Meredith of the Royal Australian Artillery declared war on ~20,000 emus, a native Australian flightless bird, similar to the Ostrich. The birds were ravaging Western Australian wheat crops and needed to be stopped. After a month of heavy fighting and having expended 10,000 rounds of ammunition trying to slay the beasts, Major Meredith declared defeat. The event was known as “The Great Emu War” and has almost nothing to do with what I’m about to tell you… almost.

Now, I’m here today to provide you with a perspective on the MiF a few years later, to cultivate some enthusiasm for the year ahead and allegedly to provide some wisdom. I’m not so sure about the wisdom part, but I’ll tell you some stories. And we’ll see where that goes. Much of what I say will have an investment management flavour, as that’s my experience and what I’m most qualified to talk about, but it also applies to other fields.

I must admit I come to you today with a mix of nostalgia and envy. The journey you’re about to embark upon is one I’d do again in a heartbeat if offered the chance. But I’ll get to LBS. First, to where it all started: my hometown, Brisbane, Australia. Many of you will not know Brisbane, but I’ll wager you might know Sydney. And if you know Sydney, there’s a good chance you know Australia was founded as a prison colony – and given recent developments, has turned itself back into one. That’s why we call each other “mate”. Nothing to do with friendship, it’s short for “inmate”.

Now it takes a unique manner of idiot to stumble upon a sub-tropical paradise and envisage a prison, but then again, these are the same people who’ve invented at least two sports they can’t actually win.

Now, upon arrival in Sydney, the enterprising colonists discovered they had the full spectrum of criminality in their prisons. Everything from the part-time criminal: the common bread thief and jaywalker to the full-blown professional: murderers, arsonists and contrivers of treason. And they realised this morass of criminality could not be allowed to remain together lest it ferment into something truly evil. So they charged a man to take the truly awful element, the cream of the crop, or the filth beneath the scum, depending on how you want to look at it. They charged this man to take the worst of the worst north (and further into paradise) and this man was called Lord Brisbane.

That ladies and gentlemen, is how Brisbane got its start. And that, ladies and gentlemen is where I got my start… as an accountant. It’s taken me 7 years to admit that publicly.

I started at EY before I’d completed my undergraduate degrees. I used to have to fit them around work. Most amusing was when I had anatomy classes in the afternoon. I’d arrive in a suit, comically overdressed for the dissection ahead, and would return to work accompanied by the faint scent of embalming fluid and cadaver. People used to ask what I’d been doing. “Guess” I used to respond. They learned not to guess.

I learned a few things as an accountant, among them accounting. But perhaps the biggest takeaway: look for the opportunities. Look and you’ll find them. In fact, if you look for anything you tend to find it. If you look for reasons it won’t work, or that it’s all over and you may as well not try, you’ll find them too. And they tend to be self-fulfilling prophecies.

So, look for the opportunities. I remember speaking to a colleague who was leaving Ernst & Young to join Whitehaven (the hedge fund I’d eventually work for) on the day of his departure from the firm. I asked him to let me know if any roles came up at the fund; and 12 months later, one did.

And so I joined Whitehaven, then an $80m AUD hedge fund, as its third employee. I was their front, middle and back office, we all were. I researched, traded, marketed, met investors, reconciled trades and dealt with custodians and prime brokers, you name it, I did it. Most of the time I had to figure it out for myself. Almost everything I did had an impact. A vast change from EY, where not even my best or worst work could change the fortunes of the partnership, and believe me, I gave them both. At Whitehaven, my best and worst work received almost real-time feedback, sometimes from the client whose wealth I’d enlarged… or shrunk. It was a wonderful experience.

Things went well at Whitehaven, the headline would read we’d grown from $80m to $280m over the 2.5 years I was there - which glosses over the challenges we faced. The swearing at the computer, the clients who called once per week asking for explanations of what fundamental errors our investment process contained that we could lose 1% of their money in a one month period. That all happened. To say things went well is true, but to say they were all rosy is not.

However, enriching as the experience was, I wasn’t developing into the equity analyst I hoped to become. I could certainly set up and run a hedge fund, but I wasn’t sure exactly how much alpha I could generate. I started to look around. I applied for many jobs during this time. At one particularly dark moment, I actually considered joining the dark side of factor-based investing. Of particular note, I went for a job at a PE fund and didn’t get it. 3 months later, another associate role opened up at the same fund, and I went for that too. And I didn’t get that either.

The managing partner of this PE fund called me into his office and said

“Mate, you’re good enough to do the job, but no one believes you’re going to stay”

“What do you mean?” I said

“Well, don’t you want to go overseas? London? New York? Hong Kong? Study and work abroad? We all did before coming home.”

I’d heard similar things from other places I’d interviewed and was getting frustrated. Why was I being viewed as a flight risk? Did I need to post bail or handcuff myself to the desk? The frustration was mounting… But then I saw the opportunity: if you can’t beat them, join them.

“So where did you go?” I asked

“To London. To London Business School to do the MiF”

I can tell you now, I’ve never been happier not to get a job.

So, after a lesson in Australian geography, history, and linguistics, and two jobs I didn’t get, we come to LBS. And from day 1, it was exceptional fun. Challenging, absolutely, but great fun too.

Your classmates in the MiF and MiF-lite – I mean MBA – are a highlight. Get to know them, and that’s best done by getting involved in the life of the school. Play rugby or football or whatever it is you do. Go to Sundowners, go to the parties, go on treks, join the clubs. Organise your own trek, party or club if you’ve got a good idea. Whatever you give LBS, it tends to pay you back with interest.

A final note on treks: go on the Snow Trek. At ~£400 and the possibility of your 90s, it is excellent value for money. Excellent. Go even if you can’t ski. It’s also a great way to meet classmates from other programmes.

Why should you meet your classmates? Because they won’t just be friends, they’ll be your mentors too. They’ve often faced the challenges you’re facing, and the second year MBAs in particular are excellent sources of wisdom on the job hunt.

I was once setting up at Sundowners (for those of you who don’t know what this is, it’s a weekly drinks function put on by the student club). Milton Freidman be damned, there might be no free lunches, but there is free beer, every Thursday from 6-8pm. One of my team mates from the rugby club and a second year MBA said he’d seen me about campus looking a bit dejected. I said his perception was accurate. I’d just been rejected from a couple of jobs I really wanted and it felt as though all the opportunities I wanted were evaporating before me. He smiled and said

“Ahhh, we’ve all been there… some of us more than others. But trust me, it works out in the end, it usually does. Y’know I didn’t have an internship until the last possible moment last summer. In fact, I think it was the second week of summer break when I got an internship offer from a tiny consulting firm. I actually had to cancel a trip to Greece to do it.”

After refining his recruiting process a little bit, that guy got a job at Bain Consulting. His words gave me the boost I needed to keep pushing, and a few weeks later, it worked out for me too when I landed a role at Petrus Advisers, an activist hedge fund.

My time at LBS was fantastic. It changed me in a lot of ways, but I think the most important one was by lending a machete to a lot of intellectual thickets. Finance can be complicated – in fact some people try to make it complicated because that’s a convenient place to hide - but fundamentally, it’s a lot of straightforward principles.

That’s not to say it’s easy. Running a marathon is straightforward: you put one foot in front of the other and repeat roughly 42,000 times. It’s certainly not easy. Finance is the same. It’s fundamentally straightforward, but starts to look complicated when you layer many straightforward rules on top of one another.

In fact, the coursework in general is amazing, I came out feeling well-grounded in the underlying principles of finance. This is worth noting: even after completing an undergraduate degree in finance and the CFA programme, I still learned a great deal at LBS. Now I still don’t think I’m that good, but I’m reasonably confident that if you ask me a finance-related question, I’ll know the answer, and if not, I’ll know where to find it.

This has meant a number of things throughout my career: I’ve trained interns, analysts, taught the C-suite and one billionaire. It has also meant I’ve been a sounding board around the office for matters accounting, valuation and corporate finance.

I was also responsible for the valuation work and technical aspects of Petrus’s public campaigns. This is stuff that’s sent out to the world and quoted in the FT. The nagging “did I get something wrong?” feeling you experience when going public with these campaigns is roughly equivalent to the nagging “did I get something wrong?” feeling you get when submitting an assignment… multiplied by about 4. Thankfully, my analysis stood up to rigorous (and not so rigorous) corporate and sell-side scrutiny and I don’t think I’d have done any of these things had I not done the MiF.

It was this firm grasp of fundamental principles and the ability to cut through the noise that helped me move up in the investment management industry. Have the confidence to identify the critical factors and focus like a laser on them. As an analyst it’s easy to bang on about a company for hours, when all the investment committee really wants is the short version: “company A is a short because the market price demands margin expansion that will be extremely difficult to achieve”. This is far better than the chapter and verse alternative: “Company A was founded in November 1932, shortly after the outbreak of The Great Emu War”. Gets your point across and give the audience an opportunity to ask questions.

It was in 2019, when I was made head of research at Petrus, that I deployed a lot of what I learned at LBS in overhauling the firm. My investment process was deployed firm wide. I used what I’d learned in interview practice with Christian Dummett all those years ago to hire a new team of analysts. And I used the lessons I’d learned from classmates and professors in talking to potential investors. The results were pleasing: after 3 years of average performance, Petrus became the highest performing European hedge fund in it’s class. It also provided the springboard for me to launch my own firm.

So how did the coursework help me do this? Well, it not only engrains this knowledge in you, it then asks you to defend it. You can’t hide. You’ll learn very quickly that “Buffett says” is not an excuse for intellectual laziness and you will need to justify your positions. I remember one great exchange in Advanced Corporate Finance:

“What’s the equity risk premium?” Asked the Texan professor

“2-5%” someone unfortunate soul responded

The professor’s response, in a wonderful southern US accent will live with me forever “Well come on partner, take a stand! Is it 2 or 5? Hell, why not 3.3%”

I’ll wrap up this section with some of the gems I learned from coursework and classmates.

Nearly all fundamental investment theses boil down to a differentiated view on revenue, margin, or investment.

Multiples and DCF are two ways of doing the same thing, and I can do that maths to link them or pull out the assumptions on revenue, margin and investment embedded in them.

And possibly my favourite: You’ve never seen a bad backtest…

And you never will.

Now no address at LBS would be complete without stories of the job hunt. You’ll notice I called it hunting, not killing. Why? Because hunting implies the possibility of short-term failure in pursuit of long-term success. Hunting is also a process. You try one thing, and if it doesn’t work, you adapt and try again. There are many things to say here, but I’ll concentrate on three: Focus on the process over outcomes, be custodian of your own career, and once again, find the opportunities.

So first up, process over outcomes. LBS is not the end of your career journey. It is a leg up, and an enormous one at that. But it’s not as though on day one the Careers Centre will hand you a stick with which to beat off hordes of slavering employers lusting after your skills in exchange for sacks of coin. Besides, this misses the point, you don’t need millions of job offers, you’re after a handful that will actually be useful to you.

Careers are a process with much randomness, so much so they might actually be chaos with a thin veneer of order. Such games are best approached from a position of process over outcomes. Don’t get me wrong, outcomes are important, but only insofar as they inform your process. So have a career hunting process.

These aren’t just my words. I once met for coffee with the global head of research for one of the large asset managers that starts with a T… and ends in Rowe Price, or was it Fidelity? Or Capital Group? It’s not relevant. What matters is we sat down and spoke careers and we’ll call him Frank… because that’s his real name.

“So, how’s it all going, James?” asked Frank

I responded with something that sounded good, but was actually complete drivel.

Frank saw through it: “I’ll be honest with your James, it’s a crapshoot. Have a process, cast the net wide, and accept that much of it is random”

Having run many recruiting processes in my life, I can tell you how true this is. Just about everyone I’ve interviewed could do the job. It’s minutiae that stops you and often minutiae you can’t change. And sometimes, they simply can’t afford you.

Frank also related the story of an intern they’d had over summer: “He was one of the best analysts I’ve ever seen James, but we didn’t end up hiring him.” I looked confused, why would you not hire one of the best analysts you’ve ever seen?

“We didn’t hire him because he thought like one of the other analysts in the team, and you don’t want groupthink.”

Now, a reasonable man would have stopped here. But my early scientific training itched. Exactly how much chaos is in a recruiting process? A hypothesis was being formed. An experiment was called for. Enter Gerhard von Portatius.

He was the president of the LGBT society at LBS, he was also a member of Austria’s far right Freedom Party. His life began at Cambridge University studying Natural Sciences then moved to Goldman Sachs as an analyst, before a stint at KKR, then a MiF at London Business School, after which he became a junior auditor at a mid-tier accounting firm. In addition to speaking fluent German and English, he also spoke basic Hebrew and 3 indigenous Australian dialects. He had been the national tennis champion of Germany for the last 11 years, and recently won the Cologne ballroom dancing competition, while partnered with his 98 year old wheelchair-bound grandmother. He made absolutely no sense and to this date is the most ridiculous character I’ve ever created. More terrifyingly, he and his fake CV took me 20 minutes to create, format and submit for consideration for Petrus’ Summer internship programme.

He was reasonably successful at Petrus and was invited to first round interviews… before one of the more discerning partners took a second look through the shortlisted CVs and thought something looked fishy. Must have been the grandmother, I knew I pushed that one too hard. Anyway, Gerhard retracted his application shortly afterwards.

Now, I’m not saying this is anything even approaching a representative sample. But, I’d say that this shows you should not to be dejected if you don’t get a job you want. As I’ve demonstrated anecdotally and experimentally, it might be for pretty poor reasons.

So, gloomy stuff. What can you do? Develop a process. Who you’ll target, when you’ll apply, how to make your application stand out. This is difficult to formulate, and I certainly couldn’t when I started. But the careers centre can provide the guidance you’ll need. The coaching they provide is hard to come by, and if you do find it outside LBS, expensive. But here, it’s of exceptionally high quality, close, and free. Go early, go often, seek their advice and implement it. I still use what I learned from them years ago.

What happens if you do these things? Often, good things and sometimes, excellent things. Using these strategies, I ended up working for an activist hedge fund. One of my class mates ended up working for one of the best performing emerging markets hedge fund, in the world. She didn’t even know it existed when she arrived in London. Another classmate works for AQR researching new strategies and factors. AQR didn’t actually come to campus hiring for front-office roles; he asked them, sold his story to them and they created the role for him, the first in London. Another friend missed his plan A, his dream role as a trader at an investment bank. So he went for plan b, he now advises a multi-billion Euro family office, hundreds of millions of which he’s directly responsible for. Plan A offered him his former “dream gig” a little while later. He turned them down, “plan B”, if you could still call it that had turned out to be a far better opportunity.

The long and the short of it is: having a process helps you. It will change your mindset from “I’ve been rejected 5 times in a row”, to “I’ve applied 28 times and had 7 responses, so my hit rate is 25%, which for investment management, is actually pretty good.” Have a process.

Also, don’t try and apply for 11 jobs a day. That’ll burn you out rapidly. Do 2 or 3 every day for a month and you’ll have done 60-90 by months end and they’ll probably be better quality. And while we’re on the topic of applications, remember that the best roles aren’t advertised. I can tell you this from experience, you find them or create them yourself.

When you’re doing this, it helps to remember that in all jobs you’ll do one of three things:

1) Increase revenue,

2) Decrease costs, or

3) Solve a problem

If you can demonstrate that value while networking, and especially in interviews, you’ll find some excellent opportunities and open a lot of doors.

Second, be custodian of your own career. By this, I mean treat it like an entrepreneurial business, be proactive, focus on what you can offer, network hard, and keep an open mind. For example, if you email someone asking for a coffee, they’ll be able to attend about 30% of the time. Not because they don’t want to, generally, it’s thoroughly enjoyable speaking to students and basking in their energy and enthusiasm. The reason they can’t attend is they’ve got a job to do – generating alpha is an extremely hard game and accepting every coffee chat will mean considerable time in which you’re not generating alpha. However, if you ask people for coffee to discuss an investment idea, you’ll find people are able to attend a lot more frequently. Why? Because an activity that was not going to generate alpha becomes one that might. The pitch doesn’t even need to be awesome, just send something that shows how you think. In fact, I used to get self-conscious about the ideas I sent out. What if they flopped? What if there was a hole in the thesis? Let me allay your fears. What you’re actually doing is buying call options. Some ideas may flop, and a lot do, in which case they’ll be ignored. Some may go to the moon, hopefully for fundamental reasons, not because it’s being pumped by idiots on Reddit. And when it goes to the moon, send a follow up and exercise that call option.

While we’re on the topic, don’t pitch Schrodinger’s investment thesis. Both a long, and a short, until it moves substantially in either direction, at which point it was always the profitable trade.

Keep an open mind about where you might end up. Most of the 2016 class didn’t end up where we thought we would. I certainly didn’t. That mostly reflects the fact that we weren’t aware of the opportunities out there, or that we’re still on our way to our target roles. This doesn’t mean it’s not important to set goals for your career. Why? Because without them, you’re essentially adrift. You can’t seize opportunities because nothing will seem opportune. Setting goals is important because it defines success, and failure. Which means you can figure out what worked, what didn’t and adjust your course to improve your chances of success next time. Having an open mind in this regard helps. Finance is constantly changing: many of the roles that enriched your parents generation either don’t exist anymore, or are so different as to be unrecognisable while other, thoroughly rewarding roles have only been created in the last couple of years. Having an open mind helps you find these opportunities. Which brings me to my final point.

Find the opportunities. There are excellent roles on the careers page. But these are by no means all the roles in the world. The best roles are the ones you find yourself, by going off-piste. Why is this? Because if you could assemble a collection of the most employable people in the world in one location and ask them to apply for roles, you’d have a pretty competitive environment. This is essentially what the LBS careers portal does. Most of the jobs on there will be filled, so you should apply for them, but it’s going to be super competitive. Engaging with companies directly drastically improves your odds. Or put another way: networking isn’t optional. You’ve got an excellent network at LBS, so use it. But don’t just rely on the LBS connections, make your own. When you’ve finished a meeting, ask to be introduced to someone else by name. Why? Because it’s much easier for me to link two people up than it is to think about the 5 or so who could be useful to you and then link you up. That is how I met our friend Frank the Global Head of Research from T Rowe, or was it Capital Group? I asked someone to introduce me. It’s just about making it easy for people to say “yes”.

If you can’t meet them, write letters to the heads of the funds you’d like to work for and send them along with an investment idea. I can tell you from experience: that has a high hit rate. Use the LBS network to meet people who work in the division you’d like to work for. If you’re reading the funds management section of the FT and notice someone senior has moved funds, it’s likely they’re looking for analysts to help implement their grand plan. Contact them directly. The same goes for anyone senior in a new role anywhere. I can tell you from experience: finding solid candidates is not an easy task, you can make people’s lives much easier by going to them directly; letters people have written me is the first place I look for candidates, my inbox second. Be audacious in your search for opportunities. Don’t be British about it. Do as my classmate at AQR did: create roles for yourself.

I’ll tell you a couple of fantastic stories about audacity paying off: One gentleman in the class below mine wanted to work for a PE megafund. He decided he wouldn’t apply online and be just another CV. He called the managing partner one morning, hoping to get through before his PA showed up. Unfortunately, she was an early riser and was already there. The conversation went something like this: “Hello, I’d like to speak to the managing partner”,

“Okay, who should I say is calling?” asked the PA

“He’s expecting my call”

That guy got an internship.

Another of my favourites comes from Value Investing. The lecturer, Eddie told us a story of an MBA classmate of his who decided he was going to apply to Berkshire Hathaway. He wrote Mr Buffett a letter detailing how much he admired his process and what he’d learned from watching the Oracle of Omaha from afar. He enclosed a stock pitch and a cheque for $500, which he said was for “tuition”. To his surprise, Buffett wrote back to him, returning the cheque and saying:

“We’re not equipped to take on interns, but if you find yourself in Omaha over the summer, get in touch.”

“What do I do?” asked Eddie’s classmate

“Umm… mate, you go to Omaha.” Said Eddie

So our hero goes to Omaha and interns with Berkshire Hathaway. He has a great time and at the end of it, Buffett asks him to pick him up from his beach house so the two of them can go to lunch. Apparently our hero is chauffeuring Buffett to lunch and is thinking

“I’m going to crash, I’m going to crash the car and kill Buffett and I’m going to be the guy who killed Warren Buffett”

Thankfully he didn’t and at lunch Buffett told him “Mate, you’ve done great work here, but the project you’ve been working on is winding up, so we don’t have anything for you to do.”

Our hero pauses for a minute. “Okay, that’s fair enough. But you’ll have other projects to work on in the future, right?”

“I imagine we will” says Buffett

“Okay, well how about I stick around to help out on your projects when they arise and in the meantime, I can help you pick stocks”

I’m going to pause here for a minute and point out the audacity of not only implying that Warren Buffett needed help picking stocks, but that you would be the one to provide that help.

“Fair enough” said Buffett and our hero had a thoroughly rewarding seven-year career at Berkshire before launching his own fund, achieving a great deal of success and thoroughly enriching himself.

The lesson here is not just about audacity, but about applying for the jobs you actually want. You will rarely find yourself in a better position to take these moonshots. Here you will have the time to do the necessary research and you don’t have to explain why you’re moving funds. So take these shots this year. Network hard, and be audacious.

So ladies and gentlemen, I’m far from out of stories, but I think it’s best we wrap things up here. Hopefully you’ve drawn some lessons from the last little while. Lessons about finding the opportunities, even when there don’t seem to be any. Remember the lessons about investing in LBS and receiving it back with interest. Remember the stories of Gerhard and Frank while on your career hunt. Remember the lessons about careers: think in terms of process, not outcomes, be the custodian of your own career and be audacious. Above all, enjoy the next 10, 16 or 24 months and know that I, and the alumni from all programmes look at you through envious eyes. It really was that good.

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