For almost 20 years I have been working in the banking or investment industry. I consider myself fortunate that I was never “trained” by any of the large brokerage houses… it would be hard to “un-learn” all the things that brokerage houses teach to impressionable young employees.
My “investment upbringing” was entirely different. In graduate school I studied under leading financial scientists who taught me to put claims of investment success to the test. My tool of choice – parametric and non-parametric regression analysis. These tools helped me understand the predictive qualities of various approaches or proxies. When somebody would say, “We have a model that consistently generates alpha,” or “We have consistently outperformed the market,” or, my personal favorite, “We are conservative investors who have consistently outperformed the market,” I could put those claims to the test.
What I found was that very few people or mutual funds that invest in public securities ever outperform their appropriate benchmark for periods longer than 5 years. And, more importantly, it is nearly impossible to identify the investors who will outperform in advance of it happening. This is not just the result of my study. These findings are documented in almost every empirical research paper ever conducted by the academic financial community.
And yet, individual investors still show up at our door expecting to hear that BIP has a stock picking crystal ball. Or worse, they believe they have a crystal ball and they are considering opening a self-directed trading account. They want the sexy pitch. They want to be romanced. But that is not what we do at BIP. Our culture and approach is not based on selling skills that take advantage of an uninformed investing public. Our advantage is rooted in investment acumen.
To be clear, we do have an advantage over most other investment advisors in public market investing. But our advantage is not based on some behind-the-curtains-magic that gives us the ability to pick winning stocks over and over again. Nope! Our advantage is rooted in factor investing and a deep understanding of the empirical tools that create the greatest advantage for our clients.
Over time, I have accepted that some people just don’t make decisions in a rational manner. After all, millions of people board a plane for Las Vegas every year expecting to beat the house. As a rule, though, we simply no longer pursue clients that suffer from gambler’s fallacy. In fact, we praise their existence. Our public market investment strategy benefits greatly from the crystal-ball seeking investor. They create enough inefficiency for us to extract an advantage (see Grossman-Stiglitz).
The other big advantage we bring to the table is our focus on private market investing. Private markets offer the opportunity for out-sized investment returns because they are less efficient than public markets. In private markets we are rarely competing to invest in an asset on the basis of price. We leverage our network to find excellent investment opportunities that nobody else is aware of. The lack of competition enables us to buy at prices that do not exist in the public markets, and that drives higher investment returns. Our clients that have participated in 12% Senior Secured Notes with 3 Year maturities know exactly what I am describing. Our curated, savvy investment model creates opportunities for clients that they will not find in the public markets or at most other investment advisory firms.
Over the last 20 years, I have spent endless hours studying the investment strategies of the people widely recognized as the greatest investors in the world (Warren Buffet, Wilbur Ross, Carlos Slim and Prince Alwaleed). And, they all have one thing in common — they are prolific investors in private securities.
So, BIP has endeavored to bring the same level of investment sophistication to our clients. We integrate savvy private market investing with a scientific approach to public markets. The result is an advantaged investment model that we believe has no rival. We encourage prospective clients to come evaluate for themselves.