Cathie Wood Vs Warren Buffett A fabulous article from the Harvard Business Review–the punchline:
Attributes that cause a manager to be chosen are the same attributes that make him a bad manager.
HBR was talking about business managers, but this rings just as true for portfolio managers.
In B-School, a shocking revelation from the core management class is that lessons from the biographies of iconic business leaders are negatively correlated with the identified traits of effective leaders. Documented by academics using large scale studies.
Investing
Research shows that practices which lead to sustained firm successes are humility, listening, adaptability, vulnerability and openness. Perhaps, ivory tower academics have no idea what they are talking about. After all, biographies of Jobs and Musk suggest that great leaders have all the answers, never doubt themselves, manically push forward despite conflicting evidence, can “will” an outcome into existence through positive thinking and, most importantly, make big bets. Of course, if failed CEOs also wrote books you would find almost identical characteristics.
Many executives seem to have taken unwarranted big bets, driven by overconfidence, which panned out. The overconfidence allows them to take credit with enormous conviction. For what has largely been driven by luck. The very reasons why they were promoted into leadership:
taking big risks due to hubris and taking credit for luck are the same reasons they fail as executives once they ascend.
There is a perfect analogy when it comes to investment manager selection. Fund managers on top of ranking tables often have big bets.
However, the bottom performing managers are identical in their risk taking. If you were to interview both, you would find their investment theses compelling and well-researched. Both would have enormous conviction and would eat their own cooking (poison). Ex ante, you can’t tell who would turn out to be right. All you can know is that given their concentration, they will either be positive outliers and be top managers or negative outliers destroying their clients’ wealth in the process.
But only the winner gets to tell his story:
Stories of unwavering conviction, of iron stomachs in the face of volatility, of steadfast certainty of his thesis. Few investors can resist these siren’s songs. Taking large risk out of hubris and then taking credit for good luck–ultimately doom the manager as steward of wealth.
All are drawn to Cathie Wood’s 2020 performance, which made her the new Buffett and drove a 30x increase in ARKK AUM. But since it’s high in 2021, ARKK has lost 50% and wiped out $25B in investor wealth. Recall when Wall Street crowned Paulson the new Buffett in 2009 for betting against subprime. He subsequently raised $32B and then lost 70%.
Cathie Wood Vs Warren Buffett
