2018 has been quite a rollercoaster year for market participants – the Dow fell more than 1,000 points twice (the two largest single-day point drops in its 133-year history), and the CBOE Volatility Index almost tripled in February before recently settling within a range that is double the 2017 average. In explaining this volatility, experts are pointing to trade tensions between the U.S. and China, and to the threat of rising interest rates and inflation. The HBS Investment Conference could not have taken place at a better time, as attendees looked to the line-up of investing titans to share their wisdom on how to approach investing in today’s environment.
In late March, the HBS Investment Club hosted their largest Conference ever, packing Spangler Auditorium to capacity (~400 people) and managing a waitlist of over 450 people. This year, the list of speakers included legendary value investors such as Seth Klarman and Li Lu, renowned activists such as Cliff Robbins, and quantitative investing prodigy Peter Brown (who also convinced IBM to build DeepBlue).
The Conference program spanned a diverse range of investing disciplines including value, fixed income, long/short, activist, ESG (environmental, social, governance), and many more. Unsurprisingly, the range of topics and questions discussed also ran the gamut, from the debate of active versus passive investing, to opining on if and when the next market correction will happen. Below, I share three actionable Conference takeaways for all classes of investors:
Stay away from the hottest trends
It may come as a surprise to some that almost no time at all was spent on the hot “FANG” stocks (e.g., Facebook, Amazon, Netflix, Google). On the contrary, many of the speakers advised caution against “the hottest areas,” likely referring to these high-growth large-cap technology stocks (and, depending on who you ask, cryptocurrencies).
Some of the speakers reminded the audience that we are indeed in an overextended bull market, which could get dangerous, especially if expectations for high-growth technology companies continue to build.
During the “Best Ideas Sessions,” founders with different strategies, such as Miguel Fidalgo (Triarii Capital), Phil Hilal (Clearfield Capital), and Nitin Saigal (Kora Management), shared their favorite investments. Such picks included a real estate management company, a paints and coatings manufacturer, and a Russian online bank – none of which would be defined as particularly “hot.”
Warren Buffett once wisely said, “Mr. Market is kind of a drunken psycho,” implying that the market can be irrational and volatile in the short-term. Many of the Conference speakers have had decades of experience in investing, and one common theme among them was their patience in investing with a long-term time intention (except the quantitative investors, of course). One of the keynotes accurately described long-term investing as picking a company that you believe in and funding its growth over time.
There were a handful of questions on robots/A.I. and data analytics taking over the analyst’s role over time, but, notably, the speakers with a longer-term investment horizon seemed less concerned about losing their edge. At least one of the speakers seemed to believe that the short-term trader will have to worry about robots a lot sooner than the long-term investor.
Surround yourself with the most ethical and self-aware people
Almost all of the speakers mentioned that a key to their success was surrounding themselves with the right people – whether it was their own investing team or the management team of the companies they invested in.
Speakers talked about the importance of ethics and culture within investment and management teams, possibly more so than simply having a strong track record of execution. Many of the investors also seemed to place some importance on ESG when assessing management teams. In selecting good investments, the role of the senior leaders involved cannot be understated.
In terms of joining or building your own team or community of investors, the speakers emphasized the importance of associating yourself with highly ethical and self-aware individuals. This not only facilitates learning and keeps you out of trouble, but also creates a healthy and fun culture and experience. Our LCA professors would certainly approve!
Bringing it all together
Although I’m not sharing specific trade recommendations from the Conference, I believe that by implementing the above three criteria in evaluating one’s own investments, one can learn to start investing like some of the legends that we were lucky to hear from. As for the many of us wondering if and when a market correction will happen, legendary investor Peter Lynch reminded us that “far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” Who knows? Only time will tell.
Many thanks to the HBS organizing team, consisting of Dennis Chua (HBS ’19), Rhonda Shafei (HBS ’19), Scott Robertson (HBS ’19), Tim Qin (HBS ’19), and Alec Guzov (HBS ‘19). The full line-up of Conference speakers this year can be found here: http://2018.hbsinvestmentconference.com/agenda/
Dennis Chua (HBS ’19) is an investor and technology enthusiast. He is the co-president of both the Investment Club and Tech Club, and co-chaired the Investment Conference and WesTrek. Prior to HBS, Dennis did investing at D.E. Shaw, and investment banking at Goldman Sachs. Dennis received a B.Sc., summa cum laude, Tau Beta Pi, in Chemical and Biomolecular Engineering from Cornell University. In his free time, he enjoys thrillers and road trips.