Dan Richards is president of Strategic Imperatives. He is a faculty member in the MBA program at the Rotman School at the University of Toronto. He also hosts a weekly conference call called Monday Morning Jump Start, which is about strategies for financial advisors. Advisors can see it GlobeAdvisor.com. He can be reached at richards@getkeepclients.com
For most of human history, people's quest has been for knowledge. Sir Francis Bacon, one of the pioneers of the scientific method, is today best known for a line in his 1597 essay on spiritual meditation: "Knowledge is power."
All that changed with the Internet's levelling of the information playing field. In short order, many executives and money managers have gone from desperately searching for information to complaining of drowning in it.
The key to success today is no longer knowledge and information alone; more than ever it's the discipline, experience, perspective and insight to know what to do with that information, something that only comes from the battle scars earned working through multiple market cycles.
In the world of money management, a problem arises from the impatience for advancement by some of the incredibly bright, phenomenally hard-working new entrants into the investment industry. Many chafe at the years of apprenticeship spent by previous generations of money managers, grinding it out as analysts before being given the chance to manage money. (And if the company they're at won't give them this opportunity, they'll jump ship to someone who will.)
I see this in my classes at the Rotman School of Management at the University of Toronto; I am blown away by the intellect, ambition, work ethic and drive of many of my students, far surpassing anything I can recall when I took my MBA degree 30 years ago. Offsetting that is a remarkable level of impatience. A good number of my students want to be entrepreneurs and start their own companies - and want to do it now, not at some point in the future. Previous generations of MBA graduates often spent a few years earning their stripes and gaining valuable experience, in the process increasing their chances of success.
Similarly, some students aspiring to work in the investment industry are juggling their MBA courses while studying for the Chartered Financial Analyst designation, an intensive three-year program considered among the most rigorous in any industry. They're doing this not only to have an edge in landing a job, but also to accelerate the path to being able to manage money. (Traditionally, people embarked on the CFA program after they started working.) So these graduating MBA students are certainly rich in knowledge, but not necessarily in insight.
It's not only entrepreneurs and investment analysts who are impatient; many talented young lawyers, accountants, investment bankers and journalists show a similar reluctance to defer the reward for putting in time the way that their predecessors did.
In part, this is an outgrowth of the increasing view of employees as expendable. A logical response to the "What have you done for me lately?" mindset of employers is the "What are you doing for me today?" stance by employees. Quite simply, young workers aren't confident they'll be rewarded for paying their dues.
The advantage of experience can be seen in early 2000, at the peak of tech mania; markets were driven to new heights by spiralling valuations for tech companies such as Palm, AOL and Nortel. The prevailing view was that the world had changed forever and that traditional measures of valuing stocks didn't apply to these tech high fliers.
Meanwhile, veteran managers who practised a fundamental value discipline couldn't find a way to make the numbers work for tech stocks and were left out in the cold, facing increasing pressure from discontented investors. Early 2000 saw a spate of announcements that long-time managers with outstanding track records were packing it in because of their inability to comprehend the new world of stock valuations.
Frequently, they were replaced by younger managers with only a few years experience; those new managers typically sold many of the boring Old Economy stocks that had dragged down performance and replaced them with the tech darlings of the time. The outcome was predictable: Under the new managers, the funds were decimated in the tech meltdown. Those cases where the veteran managers hung in and stuck to their principles did much better.
The bottom line is simple: If knowledge alone drives success, then years of experience may be less critical than intellect and analytical prowess. But in a time of market uncertainty such as we see today, intellect and knowledge alone aren't enough. Financial advisers and money managers also need the acumen that only years of hard-won experience can bring.