Square Peg, Round Hole: Why Style Fit Matters

He was the top of his class, with three buy-side offers in hand.

He took the one with the biggest name on the door. The fund traded fast. The entire portfolio turned over every few months. The PM gave him a new idea in the morning and wanted answers by lunch.

But he realized he liked to sit with a company for weeks. He wanted to know what a business should earn five years out. He wanted to buy great businesses with moats and all that stuff, while his PM had just put on three pair trades in oil stocks.

Eighteen months later, he was fired. Not because he wasn't smart. Because he was a long-term investor stuck inside a trading shop, and every single day felt like swimming upstream.

This story plays out every year. Sadly, I was one of them. And almost every great investor says the same thing: the fit matters more than the name.

I pulled advice from more than 40 investors on one question: how do you pick the right buy-side seat?

There Is No One Right Way to Win

Start with the good news. The playbook to outperform the market isn't a secret.

"The great news is that all of the successful investment strategies are known and haven't changed since the efficient market hypothesis was first put out there. The problem is that many firms don't pursue these strategies, and that these strategies require a lot of patience. When you see so many mutual funds with 100% turnover, you know that they are not following a robust strategy." — William von Mueffling, Founder & CIO, Cantillon Capital Management

But "robust" doesn't mean "one." There are many strategies that work.

Ramesh Narayanaswamy has the cleanest picture of all. RenTech and Berkshire both won. They just didn't play the same game.

"The only advice I have is to align your investing personality to your actual personality, as much as you can. You can play basketball or football, but don't bring a football to a basketball court. You need to know which game you're playing. Renaissance Technologies with the Medallion fund and Berkshire Hathaway with Buffett, have both been hugely successful, but they're not playing the same game.

Make sure that the game that you're playing is the game you choose to play and that it's something that aligns with you internally. The worst thing that can happen is you think you're a long-term value investor, but you are actually a momentum investor. They're both fine, but you need to be careful about not lying to yourself. Expressing your true self, in an environment that allows you to do that probably gives the best chance of long-term success." — Ramesh Narayanaswamy, Founder, Tourbillon Investment Partnership

Fred Liu says the best investment firms build their own style. That's the purest form of style alignment: alignment with yourself. It's also why new hedge funds will always keep popping up. Everyone wants to run their own show, so they don't have to conform to how their PM or CIO does it.

"I firmly believe that the best investment firms, I don't mean in terms of AUM or revenue, I mean truly investors and thinkers, are craftsmen at their core. They truly believe in a certain product. There's thousands of ways to go make money in the public markets. I'm not saying any of them are wrong, it's just you have to find that one style that fits your own personality." — Fred Liu, Founder, Hayden Capital

Daniel Bakalarz splits it another way, generalist versus specialist:

"You could get as micro or macro as you want. When you discover your unique skill, interest, or talent, focus on that. Generalists form alpha by connecting the dots across silos. Specialists, by knowing more than anyone else on one subject. Find the format that best aligns with your personality. Just make sure that there's a clear, concise path to what you're doing." — Daniel Bakalarz, Partner, Unison Asset Management

So the question is never "what's the best way to invest?" The question is "which game am I built to play?"

Why a Bad Fit Breaks Your Career

If every style can work, why does fit matter so much?

Because this job is emotional. Far more than school or a corporate job prepares you for.

"Be prepared for the emotional side of this game. I don't think anyone can fully express to you how emotionally demanding this business can be at times, and if you are not emotionally aligned for the game, it can be very painful. It's the best business in the world for those who are curious and emotionally resilient. There are lots of ways to make money, but it is really important to find one that fits well with the way that you are built emotionally. You have to discover it as early as you can. Markets are a very expensive place to find out who you are. I think authenticity and self-awareness are absolutely crucial for success and the more time you are introspective about what drives your emotions, the stronger you will be. I don't think this is something you can work out in school. It is something you just have to come to the business to learn." — Yen Liow, Founder, Aravt Global

Varun Gupta agrees. Get the fit wrong and every down day hurts more:

"Your own personal investment philosophy should match the firm you are working at. Otherwise, just day-to-day dealing with the market gyrations and volatility is going to be difficult." — Varun Gupta, Research Analyst, Diamond Hill Capital Management

Chris Weldon ties it to conviction:

"Try to think about yourself, and what makes you tick, because this whole business is about finding your circle of competence, and then matching that up with the opportunity set the market gives you. That'll allow you to be more concentrated and, most importantly, it will give you greater conviction when things go against you." — Chris Weldon, CEO, Stamina Capital Management

The market will test you. Similar to what Fred Liu (Hayden) said, Connor Haley's answer is to build your own style from the parts of the great investors that resonate with you. You'll need it when positions move against you.

"I think you just really need to read and reread the greatest investors of all time and ultimately find a way to incorporate some of their principles into your own process, which is important because there are many styles of investing. There's no one size fits all, and it's important that you develop your own framework from first principles so that you know and have confidence in your own style in times of market turbulence because the market will inevitably test you. And if you're uncertain about how you want to invest, you're likely to make costly mistakes." — Connor Haley, Founder, Alta Fox Capital Management

Now put someone in the wrong seat and watch what happens.

"Pursue an investment firm that has a style and culture that matches your own. If you have to work too hard to adapt the way you think to the way the organization thinks, you're unlikely to be successful in any case." — Alex Magaro, Co-President, Meritage Group

"Figure out who you are, what you're trying to accomplish, and what your temperament is. Otherwise, you may find yourself as a square peg in a round hole. On the other hand, I'm a great believer that there is not one right slot. You're going to learn a lot about investing, no matter where you wind up." — Paul Isaac, Founder, Arbiter Partners

Michael Mauboussin calls it intellectual compatibility. Short-term or long-term, you have to know which one you are:

"Being somewhere with which you are philosophically aligned is really important. Some people feel more comfortable in short-term, trading oriented organizations. Others feel comfortable in a long-term, patient type of an organization. The key is to do a really honest self-assessment and do good job of matching up your personality and temperament with an appropriate organization." — Michael Mauboussin

And even inside one style, firms differ a lot. Eli Rabinowich saw it while interviewing:

"When I was interviewing for positions it stood out to me how the style, pace of investing, and temperament varied across different value investing firms. It's important to find the place where your temperament and the temperament of the firm are in tune." — Eli Rabinowich, Portfolio Manager, Pzena Investment Management

The message is loud and clear. So how do you figure out where you belong?

Know Yourself Before You Judge Any Firm

Most candidates start by researching firms. Alex Magaro says flip it:

"Instead of trying to figure out the firm's culture or style, I'd recommend first trying to figure out your own. Start with something like: what is it you like about investing? Do you like solving puzzles? Do you have more stamina to do research than most people? Do you have a psychotically high level of persistence? Do you perform better in and like a low or high stress environment? What is your natural time preference? Are you comfortable with volatility? Are you relationship-driven? Do you prefer to think about the big picture? Hopefully, thinking about this will offer some clues about your wiring. Once you have a view about that, then you'll know what questions to ask of firms to assess the fit from your perspective." — Alex Magaro, Co-President, Meritage Group

Rama Krishna gives you a sharper version of the question:

"You need to determine what kind of an analyst you are. What do you like doing best? Is it trying to forecast whether a fast-growing business can sustain its momentum? Or trying to understand what the business should earn over the long run?" — Rama Krishna, Founder, ARGA Investment Management

Then he asks about patience:

"A career in value investing can be stressful. The rewards of exploiting behavioral anomalies compensate for that stress over time, but do you have the patience to wait for them? Depending on that, find a place that can serve as a home for you to develop your industry expertise and analyze businesses. Once you figure out your investment temperament, you can identify a number of firms that are closely aligned with your objectives." — Rama Krishna, Founder, ARGA Investment Management

Arthur Young gets concrete. Patient digger? Value. Market junkie? Maybe macro.

"Develop an investment philosophy that not only capitalizes on your skills but also fits with your personality and psychological makeup. If you're patient, love to dig, get excited when you have a contrarian view in anything (whether it's politics, sports teams, or stocks), you should probably gravitate towards being a long-term value investor. If you love watching the markets on a constant basis, you're intrigued by geopolitical developments, then maybe macro is better. But just be honest with yourself." — Arthur Young, Founder, Tensile Capital Management

Shayan Mozaffar says your edge doesn't live out in the market. It lives in you:

"Your edge comes from an alignment between who you are, what you were built to do in life, what brings you meaning and fulfillment, and what you're doing. Then committing to becoming the best you can be and developing your skills to the highest level - Your edge is the outcome of that journey. The byproduct is your ability to execute better than other people, and more consistently, in your area of expertise. Your edge is something you discover and cultivate… It is not something out in the world… It's actually within you." — Shayan Mozaffar, Founder, 10x10y

You Can't Think Your Way to the Answer. Test It.

Self-reflection only gets you so far. The best investors say you find your style by doing.

Gavin Baker says to dabble in as many styles as you can. I would do work on value names. Trade some spin-offs. Go deep on secular growth names. The right style is the one that keeps you sane when you're wrong:

"Expose yourself to as many different philosophies and processes as possible because you have got to find one that fits your own emotional make up and that helps you be rational when you're wrong." — Gavin Baker, Founder, Atreides Management

John Mullins says study your own scorecard:

"One of the best ways to figure that out is go and buy some stocks and have some winners and losers and really reflect on why. It's a tough industry but full of motivated, passionate, brilliant people. Try to find the right people and the right strategy for you." — John Mullins, Portfolio Manager, Lyrical Asset Management

Even within the same sub-style, the flavors can be different.

"I would recommend experimenting with the different flavors of value because the temperament required for each is different, and you won't know what you're best at until you try it." — Rolf Heitmeyer, Portfolio Manager, Blackrock

Jennifer Oppold says internships are the cheapest test you'll ever run. Even a "no" is a win:

"Trying to do internships to the extent that your schedule allows is probably the most useful tool to see if a role is ultimately a good fit for your interests. And sometimes, too, you discover that something that's the sexy thing at the moment is not for you and that's a really valuable learning. That can be just as valuable, though a little disappointing, to find out that you don't care for working at a certain firm or their approach doesn't resonate with you." — Jennifer Oppold, Founder, Alpine Peaks Capital

Now Interview the Firm

Once you know yourself, Alex Magaro says to turn the interview around. Clearly he is a big fan of inversion reasoning:

"The point of going on interviews isn't to get the job, it's to figure out which job you want. The point of interviewing people is not to fill an opening, but to find the person that will improve the organization." — Alex Magaro, Co-President, Meritage Group

Ellen Carr says treat the firm like a stock you're researching. The industry is changing fast:

"In the next decade, there is going to be a tremendous amount of shakeout, consolidation, and fee pressure. Think critically about the industry and the company, taking an analyst perspective. There is a lot of political pressure to invest in passive alternatives, and a lot of investment committees are blindly switching from active to passive management to satisfy their boards." — Ellen Carr, Portfolio Manager, Weaver Barksdale

Here's what to dig into.

The real process. Steve Moyer, author of the famed book Distressed Debt Analysis, has a great nugget on how to truly get the inside story:

"You should also try and get a good understanding of the investment process at a firm - something you may only gain from the junior guys if you can find one that will be candid about the reality versus the party line: is it in reality one primary decision maker, how political is the process, can you get stuck in an out of favor sector, those sorts of issues. Of course, you want to find a firm that agrees with your investment style and approach." — Steve Moyer

How they treat people.

"Really check out the firm you're going with. How have they treated the employees that they've hired? What's the average tenure? If it's 18 months, what makes you think you're going to be any different?" — Preston Athey, Portfolio Manager, T. Rowe Price

The PM you'll work for.

"A big part is also personality. If you are going to work for a portfolio manager, you have to be able to get along. That will make or break how successful you are." — Kevin Dreyer, Portfolio Manager, GAMCO Investors

The people around you.

"Provide yourself with the best opportunities to work with people who you think are smart and who you respect." — Barry Rosenstein, Founder, JANA Partners

Whether they can teach.

"This is a learning business. Try to work with people who are good teachers in an environment where you can learn a lot. The fanciest name on the door is not always the right answer to that question." — Josh Harris, Portfolio Manager/Analyst, Sequoia Fund

Don't Wait for the Perfect Seat

Now for the pushback. Not everyone thinks you should hold out for the perfect match. Remember Paul Isaac's line above: there is not one right slot.

Larry Robbins' advice is probably the most contrarian I've heard on this subject.

"There is so much to learn at a variety of different investment organizations that it is not about picking the exact right one - it is more important to get your foot in the door and get your head in the game. Do not overvalue the perfect job opportunity. Take the one that is in front of you and run with it." — Larry Robbins, Founder, Glenview Capital Management

A few other investors remind you how small a slice of your career your first buy-side job really is.

"You should be realistic that the first opportunity you get might not be perfect. If you frame your career as a continuum of learning, then this is just one step in a long-term process of continuous improvement. If you continue to learn and grow as an investor you will ultimately find a great opportunity to deploy your skills." — Chris Weldon, CEO, Stamina Capital Management

Beeneet Kothari reminds you how long the runway is:

"The biggest lesson I have learned is there are a million ways to make money in the market. Our careers are going to be 40 or 50-year periods. Munger once said, 'you only need to get rich once.' Just pick a thing - it could be a style of investing, it could be a market, it could be a sector, it could be anything. And just more or less devote your life to it. And I will promise you that in that 50-year career, there's going to be multiple moments where the market and the thing you have become an expert in align." — Beeneet Kothari, Founder, Tekne Capital Management

So which is it? Hold out for fit, or take the job?

My take: know your no-go zones. But if the fit is strong enough, take the seat.

Once You're In the Door, Adapt

This is the part most young analysts get wrong. Finding your style doesn't mean fighting your boss's.

"The most common mistake that students make is when a boss, for example, asks him for a red umbrella and then he comes back with a blue one and an explanation for how it's going to keep him dry. If you have seven different teachers, you might need to learn how to do something seven different ways. Then you can just absorb it and decide what suits you. Then when you go to work, you're probably going to need to learn to do it in an eighth way. Arguing with your boss is just not a good idea." — Paul Sonkin, Adjunct Professor of Business, Columbia Business School; Former PM, GAMCO

And when you found out about style misalignment after you got the seat, do not even expect one blip of hope that your boss will change their belief for you, the analyst. It’s always your job to mold yourself into what the firm needs, not the other way around.

"Don't think you are going to tell your boss 'that is not how I would do it'. You should really be very responsive to how your boss thinks about things. Even within value investing there are many different ways to slice it... It is important to realize how your firm values companies and to think about how they evaluate businesses." — Eli Rabinowich, Portfolio Manager, Pzena Investment Management

Ben Preston explains why firms care. Some want a blank sheet of paper. This, by the way, is why it's often easier to break into the buy side from investment banking than from another buy-side shop, especially if you're switching investment styles.

"We have a way that we like to invest and we like to think about intrinsic value. We like to have people that can absorb that without having already had their brain pre-programmed in a different way. I think if you're going to do something a little bit different and better than average, then it helps to start with a blank sheet of paper in terms of people's experiences. That way you can really train people up." — Ben Preston, Portfolio Manager, Orbis

Gavin Baker is even blunter:

"Do not be a philosopher. Do not be a high priest of investment religion. Be a practitioner. Every year, there's this crop of kids who start working at investment managers and think, because they've read Warren Buffett and Michael Mauboussin and Peter Lynch, that they are special. They're not. Everyone understands all that stuff. Don't think because you're steeped and versed in Buffett that you're special. Everyone is. Everyone." — Gavin Baker, Founder, Atreides Management

Even Buffett changed styles during his legendary career. So can you:

"Almost everyone starts as a value investor. It's funny, that's where Buffett started. And then Buffett in the early '90s became a growth investor. And so just be open-minded. People your age are coming out of business school and won't look at or do any work on anything trading at over 20 times earnings. Don't be that person. Do work on everything that you're assigned and have an open mind." — Gavin Baker, Founder, Atreides Management

The Bottom Line

Go back to the analyst at the beginning of the article.

The person didn't fail because he was bad at investing. He failed because he never asked himself which game he was built to play. And he never asked the firm which game it was playing.

Don’t make that mistake. Here is your playbook:

• Know yourself first. Your time horizon, your stress tolerance, your stamina for research, how you handle being wrong. Be brutally honest.
• Test it for real. Buy stocks, take classes, do internships, try different flavors of value. (More on this in the next article.)
• Accept that many styles work. Buffett / Munger, Soros / Druckenmiller, Julian Robertson, and Steve Cohen are all GOATs. They just didn't play the same game.
• Interview the firm like an analyst. Talk to people who have worked there and worked for your future boss.
• Don't wait for the perfect seat. Take the good enough seat in front of you and keep learning.
• Once inside, adapt. If your boss asks for a red umbrella, bring a red umbrella. Be a practitioner, not a preacher.

Just please don’t jump at the first pod shop opening just because your peers are.

If you missed the first part of the series, here is the discussion on pay on the buy-side.

What do you think?

Thanks for reading. I'll talk to you next time.

Source: Columbia Student Investment Management Association Graham & Doddsville newsletter, unless specified otherwise