Monthly Archives: August 2012

Why Investing is the World’s Most Difficult Profession

Being a professional investor is the hardest profession on the planet.

Not because the financial markets are global and 24/7.  Not because the markets are full of extremely driven and intelligent competitors.  Not because the emotional highs and lows can be soul crushing.  It is because of the constant and measurable competition against passive benchmarks.

Each day, month, quarter and year a professional investor’s performance is measured against both the benchmark and their peers.  Outside of professional sports, I’m not sure there is any other industry that generates such objective and continuous measurements. And even in sports, there is no equivalent of a “passive benchmark”.  If a player is struggling, teams do not have the option to replace that player with a benchmark that guarantees them the averaged production of every player at that position.

Benchmarks are the most ferocious of competitors.  They show up for work everyday. They never get sick.  They don’t take vacation.  They are always 100% invested so their results are continuously compounding.  Most importantly, they’re not aware of their own performance.  The S&P 500 will never enter the 4th quarter feeling it needs to really press to have good numbers for the year.  Nor will it take December off to “lock in” a good year.

Not only is the pressure unrelenting, but your failures are public on a scale that again only professional athletes can relate to.  If you do become a successful professional investor and overcome all of the above, there is always the question of skill versus luck.

No fan in their right mind believes they have a chance of beating a Kobe Bryant or LeBron James at basketball.  Yet any investor can now buy a portfolio of index funds and have a good chance to outperform not just a few, but the majority of mutual and hedge fund managers.

This inconvenient truth is like a little voice in the head of every successful investor – “Am I really good at this or have I just been lucky?”.  A voice that never goes away as it only takes a couple bad years to destroy an lifelong track record.

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I hope the iTV rumors are true

It is 11am on a Saturday and the Time Warner customer service representative is calling out numbers.

51… 51… 51?   52… 52… 52?

I’m number 59 and have been waiting patiently with about 30 other Time Warner customers. The majority of us are holding some variation of a DVR or cable box. This is my second trip to this service center in the last 90 days. Both times because my DVR has ceased to function properly. I am not surprised.

My DVR is a Scientific Atlanta Explorer 8240 HDC. A model designed and manufactured by a company that ceased to exist as an independent entity over 6 years ago. When my first one died after 5 years of use, I expected that it would be replaced by whatever the latest and greatest was. The 8240 had only been merely adequate in 2007 when I first got it and I was anticipating significant improvements over the past 5 years. Instead, I was informed that Time Warner was still using the 8240 and I would be issued a “refurbished replacement” – which looked to be in much worse shape than the unit I was returning.

To my dismay, the “new” unit did not include any software improvements either. It still changed channels at a snails pace, it still had trouble allowing you to watch something while it was recording and it still randomly deleted recorded shows. In summary, it was not as good of product as my vintage original Tivo – purchased in 2000.

Do Time Warner’s competitors have better options? I don’t know. I’ve heard mixed reviews about AT&Ts “U-Verse”, but it’s not available in my area. I know DirecTV and Dish have DVR products, but having a technician mount a satellite on my roof, run wires down the side of my house all the while still needing Time Warner for broadband internet seems like overkill for what is essentially a problem with my DVR’s software. I know Time Warner also offers the option of using a “cable card” for the newer Tivo’s, but that entails severe service limitations and eliminates all the on-demand services.

Nor is “cutting the cord” and going solely with internet based TV services an option. I enjoy live sports. I have TVs running solely off a standard coax cable connection. Anything that requires 2500+ word online “guides” describing how to setup the myriad of services and hardware required for an inferior experience is not a viable alternative. I’ve also noticed that much like trying to install Linux on a Mac, people seem to derive more pleasure in describing the myriad of steps they’ve taken to eliminate their cable TV company than in actually using the end result.

This is where Apple comes in. The media has been rife with stories that they may be building either a full blown Apple “iTV” complete with content or a cable box that can be distributed through the current cable providers. I’m open to either but would prefer the latter for the simple reason that I’m content with my HD TV and would prefer to just replace the cable box / dvr instead of the entire TV.

What most concerns me though is even if Apple was to build a cable box, what impetus would Time Warner have to offer it? The cable industry is not like the wireless industry where the vast majority of the US cell phone users were eligible to move to AT&T to get an iPhone. Cable is geography based. I can’t switch to Comcast, Cox, Charter or Cablevision even if they’re offering an Apple based cable box with three years of free programming. The only truly national providers are the satellite providers and they still have all the downsides of the physical dish and not being able to offer high speed internet.

But something has to give, doesn’t it? How long can Time Warner keep offering the same DVR it has since 2007? How long can they support a constant stream of users returning broken ones for “refurbished” ones in a massive game of musical DVRs? Except, if I’m any type of proxy, the answer is a long time. A combination of the reasons I laid out above and not being a demanding TV watcher means that it will take a significant amount of motivation for me to move from Time Warner. An amount that slow DVR channel changes and periodic DVR replacements won’t cover. Which is why I hope the Apple rumors are true.

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