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What We Learned On Our Way to Our Publisher

What We Learned On Our Way to Our Publisher

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Published by Wayne H Wagner
Companion piece to our book: Investment Management -- Meeting the Noble Challenges of Funding Pensions, Deficits, and Growth
Companion piece to our book: Investment Management -- Meeting the Noble Challenges of Funding Pensions, Deficits, and Growth

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Published by: Wayne H Wagner on Sep 10, 2009
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08/10/2010

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WHAT
WE LEARNED
ON
THE
WAY
TO
OUR
PUBLISHER
By
Wayne
H.
Wagner
and
Ralph A.
Rieves
During
a
sunny 2007 spring week
in
NewYork,
weattended
two
different
investment
conferences.
Inside thehalls of each
conference
the outlooks
wereequally
sunny.
Surprising
to
us
because earlier that spring both Wanen
Buffet and
the late
Peter
L.
Bemstein had
commentedabout
the astonishing
perceptions
of
low risk
embedded
in
asset
prices.
We
weresurprised
thatthe
opinions
of
these
two
sagesweren'taddressedfrom
he
podiumsat
either conference. Moreover, hardly anyone
mentioned
thesealanning articles
in any of
the
informalsessions.
We
foundthese
cursory
responses
to
the
well
reasoned
concems
of
Buffet
and
Bemstein
perplexing:
"What
are
most
of these
peoplethinking about
if
they'reignoringthe concemsoftwo of thebrightest minds in
fte
business?"
The
answer
was
given
to
us
later
in
the week
by
two other experienced and successful
observens
of
the
business.
Summarized, the answer
was:'Nof
a
hell
of a
lot...
and
ffie
consequen@s are
goingto
be
ugly.'
Laterin
the
month,
we
leamed that this concem wasshared
by
offier
peoplewhose
opinions we had
leamed
to
appreciate.
They
hadeamed
our
appreciation
by
their
habit
of
thinking about
their
thinking. Theyviewedassetmanagement
as an
everchangingseries
of
challengesencountered among
all the
elements
and
playens
in
the
global
capital madtets.
They
identified
the
challenges,
reflectedon them,assessedtheattendantrisksand then
made decisions
they
and their
clients
could
live
by.
During
the
summel
we found
ourselves engaged
in
discussing
this
'state
of
the
business"
with
trustees,academics,
and
regulatorc.
Someof
them encouraged
us
to
undertake
a book.
Soonafter,
we
had recruitedsomeof thosewhose work
we
appreciated
to
contribute
to
the
book.
By
that
Fall
things
had definitely
tumed
"ugly."
While
compiling
the
book
we
enhanced
ourappreciation
of
how muchthefutureall
of
us are
striving
for
depends
on
our
thinking about
the
relationships
among
all
playens
in
the
capital
markets;
as
well
as
reappraising
the
consequences
of
astonishing
digital
velocity.
Marketsare
comprised of
people
and
peoplewill
act like
people.
Regardless
of
howquicklyinformation
is
retrieved,itstillhasconsequenceswhich
can
result frcm
the
conclusions drawn
and
the
actions taken.
What follows are some
of
what
we
leamed
or
were
remindedabout as we worked on
the
book.
1.
We
Need
to
Be CoolWebuild our mindsets,
models
and our
reputations on
our experience.
But
our
experience
can
never
cover
all
the
possiblesituations
thatmay
occur.
As
Bemsteinwiselywamed,
'Being
wrong
on
occasion
is
a
disagree-
able
reality.'
Thesituation
is
particularlydisagreeable
when it
challenges
our
rationality andexposes
the
deep
emotions
that
arisewhile
sailing
in
uncharted
watem.Thus,
there
is
nosuch
being
as
a
totally
rational
client,
andtherc
will
never
be
a
portfolio
manager
who
cancontinually
ouperform the
market.
Thesesystemic
or
macroeconomic disruptionsforceus
to
reexamineourcoreassumptions.Forexample,weleamthat statistical distributions
are
notalways'normal"
and our faith
in
slatisticalcertainties
maybemisplaed.
We
leamed
that
the
covariances
we
measure
maybecome
unstable
just
when
we
rely on
themthe
most. We
may
need
to
slow down
the tempo toguardagainst
knee-
jerk
reactions
such
as
fingerpointing, panicselling, or
(spare
usall)
another
rush
tomore
regulation.
2.
We
Need
to
Retain
a
Sense
of History
Marketsgetout
of
balance,andwequicklyforgetthatthe record showsthey seemto
go
crazy every few
years.
Publiclytraded companies emerge and disappear. Smartpeopleoccasionally
will
be wrong, very wrcng. Thestory
of the woddisfull
of
unexpected
instances,
both
fortuitousand calamitous.
A
heightened sense ofperspectivemight
be
the
best attribute we
can
have.
The
past
we
grew
wise
in
may
or
may
not
replay,
particularly
in
theshort
term.
We may
need
to
adjust
to a"safemode"
in
the face
of
ovenuhelming uncertainty.Wedare not lose thecapacity
to
spring into
action.
Perhapsin ways
that
are
entirely
new
to
us,but
that
are demanded
by
the changing
environment.Adaptabili$ isthekey
tosurvival
in
economic
aswell
as
biological environmental
change.
Wedon't
knowhow much
wedon't
know.
But
what we
don't know
is always out there, waiting
for
us.

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