How I will encourage my daughter to be a successful investor
August 18, 2022
Chief Investment Officer (CIO) at BluOr Bank
You are now a year old, and I am convinced that you are ready to shoulder your father's ambitions of being one of the finest investors of all time. No pressure. You can handle it.
In your first year you have mastered traits that the world's most brilliant scientists have spent decades trying to teach to computers, but that are still not mastered to this day, such as: identifying objects, speaking, standing and maneuvering over considerable obstacles.
You are a quick learner, curious, and love to read. You are independent, focused and relentless in the pursuit of your goals. You are also charming, show genuine interest in other people and have a phenomenal sense of humor.
And I am going to try to teach you everything I know about investing until you inevitably far eclipse everything that I have ever learned.
At first you might be interested in what I will teach you because you love your dad, and like my attention. But we will be going over some powerful concepts that will not just empower you financially but also serve you well in other parts of your life.
Not many people teach their children about finance, and most schools do not have it as part of their curriculum.
For parents that are interested in teaching their children financial literacy, it is usually suggested to teach children about budgeting. An advanced maneuver would be to buy a stock from a company that they know and like, such as Disney. This way a child can begin to follow along with share price movements over time. Unfortunately, they do not really get into how these concepts apply to other parts of your life as well. But we will.
Budgeting is very important. It is the foundation of allocating capital and forces you to be aware of the choices you make in the context of serving a larger goal. We will also pay particular attention to how time and money are interlinked, and how budgeting your time is just as important as budgeting your money.
In fact, time is far more important than money, because you can make money over time, but money cannot buy time, despite billions of dollars being spent every year in a vain attempt to do so. Most notably, the richer you are financially, the more you will pay for more time.
You will be amazed when you find out about compound growth, and we will discuss how this concept can be applied to other parts of your life as well.
Money is capital, but it is not the only form of capital, and what you invest in other forms of capital such as friendships, your health, education and creativity will have a profound long-term impact on the quality of your life.
We will also discuss the often overlooked fact that a necessary pre-condition to making money is that the market is either not aware of a given opportunity, doubts its odds of success, or underestimates the magnitude of what can happen.
If these conditions were not in place, it would not be possible to find outsized returns. Most people look at a result and more or less consider it to have been inevitable. This is not so. If it was inevitable and obvious everyone would have done it and there would be no value to capture.
This is very important to remember.
As an investor, you inherently face doubt and ignorance on a daily basis. You must develop conviction in your investment thesis by identifying that which others have overlooked. This can be a lonely task, but is a precondition of investing in something exceptional. You need to remember this during other occasions in life when people doubt you or are dismissive of you. If something is obvious, there is little value in pointing it out, though many think themselves clever by doing so.
I will also teach you that using stereotypes when investing is lazy and a very poor strategy. This also applies to people. To be an excellent investor you need to see what is below the surface of what is obvious. This is where you find real value.
If you choose to pursue a career in finance, you, as a woman, are likely to face many obstacles, many due to the residual toxicity of stereotypes that should have been banished long ago. The gender balance in asset management is egregious. The first summer internship that I had (a long time ago...) was at a major Canadian investment bank. There was only one woman out of fifty front office employees.
Change is moving in the right direction, but not fast enough. Male decision makers still outnumber females by an order of magnitude. That being said, the wealthiest and the most powerful person in finance today is a woman: Abigail Johnson, Chairman and CEO of Fidelity Investments.
I am truly hopeful that by the time you are looking to make a career choice you will not have to face the obstacles that existed for previous generations of females in capital markets. But here is a trick that I learned: if the odds are stacked against someone and they succeed nevertheless, pay close attention to that person and try to learn from them.
By the time you grow up I hope that you will have far more female mentors to choose from than previous generations of successful females in finance. Given my position, I acknowledge the important role I can play in giving opportunity or helping to inspire the current generation of female success stories that could serve as an example to you if you chose to pursue a career in finance.
First, I want to grow my business and my next employee will be female.
I also serve on boards of directors where we are mindful and constructive of having gender balance as a critical component of board planning. In fact, the newest board member for the American Chamber of Commerce in Latvia is one of the most successful women in banking in Latvia. I look forward to her contributions to our board.
I also know that it is important to help to shape public perception and here too I have a role to play.
I often partake in presentations and round table discussions. There too I put an emphasis on making sure that female perspective is heard.
If you are always hearing the same thing from the same type of people, you need to find yourself a new room. Having different perspectives and from different points of you strengthens critical thinking. And you need to think critically to be a successful investor.
You can choose to do whatever you want. Never think you do not have a choice. But remember, choice means responsibility. As an investor you need to be careful and thorough about the choices you make. In the context of capital markets good choices mean making money, poor choices result in losing money.
Unfortunately things are not that simple. The result does not necessarily always reflect the quality of your work. The best investors of all time know this. This is why they focus on process, not outcome.
Sometimes your conviction will have been misplaced or will become compromised by something out of your control. And you will have to deal with it and move on.
What can be even worse than bad luck is having gotten lucky on a trade as this can lead to misplaced overconfidence that can have deeper negative consequences down the road.
Identifying and learning from mistakes is how you grow. To do this you must be self-critical, but you also need to tune out the “noise” – information that has nothing to do with building a sound investment thesis and can mislead you. “Noise” disrupts focus and can prevent you from realizing opportunity.
A few years ago the think tank that your mother works for – Providus - released a report that delved into why so few women have historically chosen to enter the field of Information Technology. This scientific study revealed that one of the primary reasons that women said that they did not choose careers in IT was that they tended to be more self-critical and blame themselves for mistakes. On the contrary, men tend to put negative emphasis on external factors. It is important that you know that this is a bias that is due to conditioning, and is not something that is inherent.
Negative self-criticism is not something that anyone is born with, but can be shaped by over time through negative stereotypes and influences.
We will raise you to be independent and to value your self-worth, but we know that there will be a myriad of exogenous pressures that you will face on a daily basis. Peer pressure, disparaging comments, teachers that girls should not study ‘hard’ subjects like math. This will not be your fault, and it will not be pleasant.
As such, I will make very sure that you understand that the best investors make mistakes all the time, and that the more difficult something appears to be, the greater the victory once you master it.
In fact, the very best investors tend to discuss the trades that they got wrong more often than the trades they got right. The key is that they are constructively self-critical. They use self-criticism to learn and build, not to put themselves down or to consider themselves unworthy of managing money.
One way that they allow themselves to recover from mistakes is by diversifying the exposure of their portfolios. This allows them to have the must have enough capital to stay in the game in case something goes wrong. Great investors have to have conviction, but they are never all-in on any single trade.
However, this does not mean you have to diversify for the sake of diversifying. Contrary to what laymen in finance would have you believe, no one ever became rich through diversifying. Instead, people become rich by allocating their capital to a few key investments. For most people this means having invested in a career that brought considerable financial rewards. For others, it means having focused their capital on the right companies at the right time. This serves as a good example for relationships and friendships as well.
Invest in your friendships and people that bring you higher multiples of joy. These are some of life’s finest investments.
Lastly, to be a successful investor, you must be able to manage your emotions. This is truly the most difficult part of investing. Thankfully, when it comes to investing, studies have shown that female investors are more able to manage their emotions than men, so I look forward to learning about this from you at some point down the road.
Keep building your capital little one.
You have already made your mother and I richer than you could even know.
The Latvian version of this article originally appeared in the August 2022 issue of Forbes Latvia.
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