financial investment
The Financial Manager’s Path
May 15, 2015
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Was it curiosity that brought you here? Or was it your desire to walk on the Financial Manager’s Path? At the end of this path lies a goal that everyone wishes – but not everyone strives like Norman Brodeur – to achieve: Financial Independence. It is a state in which people have sufficient income to not worry about covering their daily expenses, thus gaining more freedom in living their life as they wish.

financial-independence

Before deciding to take this path, you should know what it takes to reach its goal and why not everyone has taken it yet.

Invest or get funded?

We will introduce you to the story of the successful financial manager Norman Brodeur, and his philosophy of life.

Currently,Norman is a member of the Private Capital Network (PCN) & Archangel Global Investors. As such, he has made it his mission to help passionate entrepreneurs reach their goals.

How did Norman Brodeur journey begin?

In 1993, at the age of 22 years, Norman has entered the business of securities. His passion for the job had brought him the title of Executive Vice President at Gruntal & Co. – the oldest independent banking house in the US. He had also become a member of the “12 Knights of the Round Table”, a group which included Gruntal’s top brokers.

Under GKN Securities, he had invested in the companies Winstar Communications and Aerial Communications, with the former reaching a revenue of over $445 million plus a $4.4 billion market capitalization and the latter becoming a TDS subsidiary of T-Mobile. He also had successfully provided stock market launching funds for BlueFly.

These successes had further motivated Norman to provide early financing to the now-famous e-commerce websites such as eBay and Amazon, as well as to Netscape Communications (which later became part of AOL), Broadcast.com (now part of Yahoo!) and the JDS Uniphase & SDL merger.

In September 2004, Norman had put to use every skill he had gained through his journey and had founded the WNA Venture Capital Partners group, thanks to which OneScreen Inc. has been founded.
OneScreen Inc. has been recognized by Inc 500 as one of the fastest-growing private companies in the US between the years 2011 and 2013.

Throughout his journey, Norman Brodeur has lived true to his philosophy of making value investments in businesses whose entrepreneurs were promising and passionate. These entrepreneurs start off as financially dependent on investors but reach financial independence through commitment to their goal.

In order for someone to invest in your business, you must be devoted to your business. However, you must also know how and why an important investor would choose your business over others and what chances you have. In case you choose to become an investor, what follows is equally as important for you.

What are the best investments?

As an answer, we can share a lesson from one of the most famous investors in America, Warren Buffet.
Warren is currently Berkshire Hathaway’s Chairman and CEO, and one of the world’s wealthiest persons. He is regarded as the “Wizard of Omaha”, “Oracle of Omaha” or “Sage of Omaha” due to his skills in value investing and frugality.

As a young man, Warren Buffet was inspired by the book “The Intelligent Investor” written by Benjamin Graham. He recommends it as “the best book about investing ever written.”

He went under apprenticeship under Graham to learn his ways and work for him.

Warren followed in the footsteps of Graham, starting from what was essentially zero and reaching the peak of Financial Independence.

Charles Thomas Munger, known as Charlie Munger, was the chairman of Wesco Financial Corporation, which has become a fully-owned subsidiary of Berkshire Hathaway. In the present day, Charlie Munger is the Vice-Chairman of Berkshire Hathaway and is known for his association with Warren Buffet.

They share their admiration for Benjamin Graham and a similar philosophy when it comes to investments. When deciding what investments to make, Warren and Charlie categorize their options by putting them into metaphorical baskets labeled “in”, “out” or “too tough”.

The “too tough” basket represents businesses that aren’t ideal for investing in. Munger advises investors to eliminate everything they do not understand or is too hard from their choices and focus on opportunities that can be stacked at the top of the pile of options.

Warren Buffet would only make a purchase if there is no better opportunity in buying anything else in the world. While Buffet agrees with purchasing a mediocre business for the sake of portfolio diversification, Munger considers that “The idea of diversification is madness,” and that “It emphasizes feeling good about not having your investment results depart very much from average investment results.”

Warren Buffet and Charlie Munger consider investments in the airline business as a risky one to invest in. Warren states that “The big problem is not aggregate costs, but costs versus competitors. If your costs are out of line, you’re going to get killed eventually.”

From the two famous investors, we can learn that investment opportunities must be carefully weighted and that the least reliable of the choices must be eliminated from the list.

Can anyone beat the market?

David Tepper – hedge fund manager and the founder of Appaloosa Management – is one of the few investors who have made it to the top on their own. While he is acknowledged as a person who had managed to beat the market, fund managers would rather advise clients against choosing his way, due to a high risk of the client underperforming.

Stanley Druckenmiller – former Chairman and President of Duquesne Capital – stated jokingly that “I think David Tepper is awesome and if he’d take my money, I’d give him some but I think his fund is closed.” Through this he acknowledges that he may never become a limited partner in David Tepper’s funds. It is also not wise to attempt to reach the top as the richest person on your own. Many who have tried have failed because they didn’t focus on managing their finances.

The goal is to reach Financial Independence. Reaching the top isn’t very likely to happen and pursuing this other goal can come with major losses.

Stanley stated that “I’ve learned many things from [George Soros] but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

This means that every investment has its ups and downs. Instead of focusing on “not being wrong”, one must make sure that the losses suffered are as small as possible and the earnings while “being right” are as high as possible.

He has also learned from George Soros’ philosophy to hold a group of stocks short, a group of stocks long and to use leverage to trade futures and currency.

When to seize an opportunity?

Julian Robertson, former hedge fund manager, says that his philosophy is “Hear a story, analyze and buy aggressively if it feels right.” Similar to Buffet and Munger, he focuses on investing where the competition is lowest.

Robertson compared hedge funding to an antithesis of baseball. “In baseball you can hit 40 home runs on a single-A-league team and never get paid a thing. But in a hedge fund you get paid on your batting average.” “If you play in the big leagues, even if your batting average isn’t terribly high, you still make a lot of money.”

David Einhorn, Chairman of Greenlight Capital, takes a slightly different approach when making investments. Instead of making the traditional value investment analysis first, he focuses on finding reasons why certain assets are misspriced and then does the analysis. Einhorn considers it similar to solving a puzzle, taking into account the bits of information, the facts, the numbers and people’s motivations. He considers that this approach consumes less of his firm’s resources.

Mario Gabelli, founder of GAMCO Investors, Inc, reminds beginner investors that markets fluctuate. He speaks of Benjamin Graham’s book, “The Intelligent Investor”, saying that the market is compared to a bipolar maniac. He has learned that “Mr. Market” should not be an intelligent investor’s master but instead should be a servant.

Leon Cooperman, founder of Omega Advisors, also seeks opportunities where the assets have a lower value than they could have.

“We are trying to look for the straw hats in the winter. In the winter, people don’t buy straw hats, so they’re on sale.”

According to Cooperman, with proper research, a smart investor can anticipate which assets will become valuable in the future and invest in what nobody has a need for at the moment. Similar to the straw hats analogy, an underpriced business can become a valuable asset if its services are put to use at the right time.

Seth Klarman, founder of Baupost Group, isn’t as optimistic when it comes to anticipating what value an asset will have in the near future. He advises investors to avoid giving in to crowd psychology and that “Buying is easier. Selling is hard.” Klarman considers that brokers are the only ones benefiting from short-term investments due to generating higher fees, and that it is best to aim for mid-term or long-term investments.

Bill Ackman, founder of Pershing Square Capital Management, says that it is important to research before buying a stock, and to not allow the company’s name to influence your choices. He also states that it is important to predict with a high degree of confidence what the cash flow of a business will be and to have a margin of safety. To quote Ackman, “Find a business that you understand, has a record of success, makes an attractive profit, and can grow over time.”

Carl Icahn, while not as famous as Warren Buffet, is an “activist” investor. He is known as the ultimate contrarian thanks to his unusual choices when it comes to investments. Icahn seeks companies that the market doesn’t seem to be giving much of a chance to. He bought Forest Labs two months after its antidepressant medicine, Lexapro, was no longer a patent. He then repurchased Chesapeake Energy in May 2012, when natural gas prices crashed. Icahn has also made the headlines by paying $460 million for a 10% stake in Netflix. His reasoning behind these strange choices is “When you conclude something is really cheap, you’ve got to be willing to load up.”

While there are various philosophies that every investor has, it is important to take a page out of each one’s book. It is also important to observe that they all seek the best deals and take the future into account. Not everyone can make it to the top when it comes to finances – and it takes some good luck too. But with enough caution, time, commitment and a good strategy with a backup plan, anyone can become a good Financial Manager.