"Life is like a big lake. All the boys get into the water and start swimming. Not all of them will swim across. But one of them, I'm sure, will. That one is Groff."
~Andy Grove's High School Physics Teacher
Andy Grove concludes his memoir Swimming Across, with the line “I am still swimming.” This line perfectly epitomized a life of non-stop action toward overcoming obstacles, continual learning, and striving to make himself a better scientist, manager and citizen. This mantra of "keep swimming" is vital to success. No matter what line of work or role we play in life, it’s impossible to know all there is to know. Perfection isn’t possible. What’s important then is to keep moving forward, getting better, and never to stop “swimming”.
This weekend more than 150,000 people across the world will follow Grove’s example of lifelong learning and sit for one of three levels of the Chartered Financial Analyst (CFA) exam. Described as “Wall Street’s Toughest Test” or the “Mount Everest of Finance” less than 20% of those starting the program will complete it. A Yahoo Finance article describe the program as follows:
But passing is not an easy task. Usually, more than half of all those taking any level of the exam fail. They then have to wait as much as a full year to take the same level again. Candidates can spend hundreds of hours over the course of several months studying for just one test.
So, why do so many people sacrifice their free time and social lives to take these exams? It’s because the CFA designation is perhaps one of the most respected in the investment management industry. Lisa Plaxco, CFA, head of the CFA program at CFA Institute, says, “It is the global gold standard for competency and integrity throughout the investment management industry, both for professionals and their clients.”
It’s hard to believe this Saturday will mark five years since I took my third and final CFA exam. Becoming a CFA Charterholder was without a doubt the most challenging academic endeavor I’ve pursued, but at the same time, the hundreds (possibly thousands) of hours spent were well worth it. Earning the CFA charter was a great career decision, and I’m proud to be part of an organization that is making our industry a more professional and ethical one. (For example, in May the CFA Institute held a “Putting Investors First Month” which focused on improving our industry so investors can thrive.)
So, I say all this to say I was thrilled when asked to contribute to the CFA’s Enterprising Investors blog. For my first article, I wrote about four investing lessons we can learn from the life and career Former Intel chairman and CEO Andy Grove. You can read the article below or head on over to the Enterprising Investor blog and read it there.
I hope you enjoy it and for anyone out there taking the CFA exam this weekend, good luck!
Former Intel chairman and CEO Andy Grove passed away in March 2016. Many have
celebrated his life by sharing the business lessons they learned from following his career. But there are also investing lessons to glean from his life, writings, and the legendary Intel culture he helped to create.
My firm specializes in working with current and former Intel employees. We see the culture that Grove shaped living on in our clients and impacting how they view the world.
One of the striking things about Grove is that his approach reflected the messy nature of running a business in the real world. Rather than taking a dry, academic approach, he had a hard-fought perspective earned in the trenches of building and running one of the most important companies in the modern world. This perspective is quite valuable for both investors and business leaders.
So, here are four investing lessons from his life, all of which are quotations from Grove himself.1. Make Decisions Based on the Evidence
“Altogether too often, people substitute opinions for facts and emotions for analysis.”
After Grove was diagnosed with cancer, his response was typical of him — so much so that it resulted in a Fortune magazine article. Realizing the medical community disagreed about the best treatment options, Grove pored over the research, reading case studies, cross referencing them, and plotting the data to draw his own conclusions.
Good investing should be done the same way. We should be willing to do the deep research ourselves and not simply base our decisions on the opinions of others. And we should be ready to change and adapt as new information and data become available. What worked in the past might not be the best approach now.2. Perception Matters, Too
“The ability to recognize that the winds have shifted and to take appropriate action before you wreck your boat is crucial to the future of an enterprise.”
Good investing is evidence-based, but an investment strategy is generally carried out by humans — and our occasionally less-than-rational cognitive processes. How we perceive something often affects the outcome.
In 1994, Intel successfully navigated the Pentium floating point bug by grasping that the world and its customers had changed. Intel initially determined that the error, which affected a small number of users, could be fixed over time. This approach was the logical, data-driven response in Grove’s mind. But the world was different. Thanks to its successful “Intel Inside” campaign, the company was now forced to deal with the public, and the public’s perception of Intel mattered a lot.
Intel realized that, while not the most logical course of action, it had to offer to replaceall Pentium processors for any customer who asked. This cost the company nearly half a billion dollars but saved the Intel brand.
How does this apply to investing? Any investment strategy must consider both the evidence for and the perception of that strategy. Perhaps a strategy that relies on concentrating a position might outperform over time, but if it’s too far out of the mainstream, investors might abandon it at the worst possible moment and miss out on that outperformance. The list of mutual funds with a behavior gap is long.
Another example is holding cash. The data is clear that holding cash is a drag on returns over time. But if this cushion helps investors sleep at night and allows them to stick with the overall strategy through market cycles, this “de-optimization” might actually provide a better result.3. Embracing Fear is Helpful
“Success breeds complacency. Complacency breeds failure. Only the paranoid survive.”
Too much fear can be a bad thing. It can lead to poor, shortsighted decisions or to no decision at all. With investing, risk (fear) and return are linked: You can’t expect an attractive investment return without taking on some level of risk. So we often try to ignore or mitigate the fear that comes with investing.
But the right amount of fear can be helpful. It sharpens the mind and keeps us on our toes. Healthy fear is not some paralyzing force but rather the opposite of complacency. Instead of eliminating all fear, we should embrace it as a way to stay sharp and to avoid lulling ourselves into the intellectual trap of believing that what works now will always work going forward.
As investors, we need to realize that markets and investments are cyclical. The hot company or sector in the current environment won’t necessarily be the best performers in the next one.
Leaning into fear and away from complacency isn’t easy. As Grove wrote, “it takes a lot of time and a lot of intellectual ergs.” But, if we embrace fear, we will be all the more ready for what comes next.4. The Future Favors the Optimist
“In order to build anything great, you have to be an optimist, because by definition you are trying to do something that most would consider impossible. Optimists most certainly do not listen to leading indicators of bad news.”
Grove, while famous for his paranoid outlook and diligence in tackling potential problems before they became real ones, realized the importance of being optimistic, too. His own story reflected repeated triumphs over long odds. As he wrote in his memoir, Swimming Across:
“By the time I was twenty, I had lived through a Hungarian Fascist dictatorship, German military occupation, the Nazi’s ‘Final Solution,’ the siege of Budapest by the Soviet Red Army, a period of chaotic democracy in the years immediately after the war, a variety of repressive communist regimes, and a popular uprising that was put down at gunpoint.”
His sense of optimism was forged in response to unbelievable trials and hardship and helped propel him across the ocean to the United States, where he built his company and his legacy.
Optimism works with investing as well. Since 1970, the economy and the markets have dealt with countless upheavals: wars, recessions, oil shocks, Y2K, the tech bubble, Asian financial crises, and the Great Recession, just to name a few. And yet, over this same period, an optimistic investor starting with $100 in the MSCI World index would have seen it grow into $4,500 by 2015.
Make decisions according to the evidence, but consider outside perceptions, too. Embrace fear, but maintain an optimistic outlook. This is just some of the investing wisdom of Andy Grove, a great businessman and leader — and, as it turns out, a pretty smart investor, too.
This article originally appeared on the CFA Enterprising Investors blog https://blogs.cfainstitute.org/investor/2016/05/25/four-investing-lessons-from-intels-andy-grove/
There are three sequential levels of exams; the first level is offered twice a year, and the second and third levels are administered only in June. Candidates who pass each exam and meet career qualifications—four years minimum in finance—are eligible for a CFA charter.