Malcolm Gladwell: The Sure Thing

I'm a latecomer to the Malcolm Gladwell fan club but you can now consider me a full-fledged member.

Malcolm Gladwell, if you don't already know, is a writer for the New Yorker magazine. However, he is better known as the author of a variety of best selling books, including The Tipping Point; Outliers; Blink; and most recently What the Dog Saw: And Other Adventures.

I had the chance to see Mr. Gladwell give a talk here in Boston a couple of weeks ago, and he was great. The title of his talk was "Puzzles and Mysteries". He discussed how we often look at everyday problems as a puzzle to be "solved" when in fact there often is not a clear answer, only a mystery to be pondered.

In fields as diverse as medicine, defense, and even investment management, we expect experts to have solutions, but often there are only a series of choices, each with a different probability of success.

In any event, Gladwell has a website that features a variety of his articles for the New Yorker. I just read one article that I really enjoyed that was originally published in the January 18, 2010, magazine that was titled "The Sure Thing: How Entrepreneurs Really Succeed" I have included the link to his site below.

The article discusses the fact that many of the success stories that we read about - ranging from Ted Turner's billion dollar media empire to hedge fund manager's John Paulson's $4 billion payday (due to his correct assessment that the U.S. housing market was poised for a fall) - are often less risky to the entrepreneur than we might expect.

Gladwell gives numerous examples of how these wildly successful entrepreneurs were constantly worried about downside risk, and structured their investments to try to minimize any potential financial exposure should their investments fail to work out as planned.

This is, of course, tremendously relevant to the investment business. It is axiomatic in my business that the major difference between an older portfolio manager and a younger one is the fact that older investors tend to fret most about downside risk. Younger investors - who either have never been through a bear market or have only known profitable trades - tend instead to think about upside potential.

Given my age (53 years old) and the number of years I have been working with clients on investments (almost 30 years) you can guess what type of investor that I am.



gladwell dot com - the sure thing