Link to original video by Stanford Graduate School of Business

Characteristics of Great Investors

Characteristics of Great Investors

Short Summary:

Tom Baric, a seasoned private equity investor, shares his insights on the characteristics of great investors, drawing parallels to the world of surfing. He emphasizes the importance of adaptability, risk tolerance, and a willingness to go against the crowd. Baric highlights the need for investors to develop a strong instinct for opportunities, emphasizing that information alone is not enough. He also discusses the current market environment, highlighting the challenges posed by the credit crisis and the rise of sovereign funds. Baric believes that the US is a good long-term investment, while emerging markets like China and India are attractive for growth. He concludes by urging investors to be prepared for continued volatility and to embrace the opportunities it presents.

Detailed Summary:

Section 1: Introduction and Surfing Analogy

• Baric begins by acknowledging the privilege of speaking at Stanford and emphasizes the importance of developing the right tools for success in the investment world, comparing it to having the right clubs in your golf bag.
• He uses a personal experience of surfing in Hawaii during a rogue wave to illustrate the unpredictable nature of opportunity fund investing, highlighting the need for preparedness and risk management.

Section 2: Characteristics of Great Investors

• Baric outlines key characteristics of successful investors:
  • Hard work and preparation: "Harder work, more preparation, more risk, quicker risk analysis, take the left instead of the right."
  • Adaptability and risk tolerance: "Harnessing this adaptability, this risk tolerance, is one of the toughest things."
  • Instinct and experience: "Great investors develop the theme after the instinct. They don't create the theme and go out in the world and try and find the theme."
  • Cultural sensitivity: "One of the most essential ingredients for any great private equity investor is their ability to be able to sense the culture."
  • Humility and respect: "Humility, unless you are the number one smartest person in the field that you're in, you can be unfriendly, you can be not nice, you can be arrogant."

Section 3: The Current Market Environment

• Baric discusses the current market environment, emphasizing the challenges posed by the credit crisis and the rise of sovereign funds.
• He highlights the role of accounting and regulatory changes in driving the crisis, comparing it to the Savings and Loan crisis of 1990.
• He criticizes the use of derivatives and complex financial instruments, stating that "nobody understands fair value accounting, including the accountants."
• He warns of the potential for a backlash against foreign investment in the US, particularly from the Middle East.

Section 4: Investment Opportunities

• Baric outlines his investment outlook, highlighting the potential for growth in emerging markets like China and India.
• He believes that the US is a good long-term investment, citing the undervalued dollar and the resilience of the American economy.
• He sees infrastructure as a promising area for investment, particularly in the context of municipal bond challenges.

Section 5: Conclusion

• Baric concludes by emphasizing the importance of adaptability and risk tolerance in the current market environment.
• He urges investors to embrace the opportunities presented by volatility and to be prepared for continued challenges.
• He uses the analogy of a lion and a gazelle to illustrate the need for constant effort and adaptation in the investment world.

Notable Quotes:

• "The tools that you develop over time will be what you're able to utilize."
• "This is where we are, this is the moment that we're in today, this is what opportunity fund investing is like."
• "You have to find extraordinary risk, but you have to practice extraordinary risk, and that's the key."
• "The information you have is not the information you want, the information you want is not the information you need, the information you need is not the information you can get, and the information you get everyone has."
• "It's not a liquidity confidence crisis, it's a confidence crisis."
• "Every morning a lion wakes up in the jungle and knows that it has one thing to do, it's got to run faster than the slowest gazelle, and every gazelle wakes up and knows one thing, that to survive it has to run faster than the fastest lion."