10½ Lessons from Experience: Perspectives on Fund Management

by Paul Marshall

In 10½ Lessons from Experience, Paul Marshall distils the experience of 35 years of investing, including over 20 years at Marshall Wace, the global equity hedge fund partnership. He describes the disconnect between academic theory and market practice, in particular the reality and persistence of 'skill' - the continuing ability of the best practitioners to beat the market. But he also underscores the prevalence of uncertainty and human fallibility, showing how a successful investment management business must steer a path which recognises both the persistence of skill and the pitfalls of cognitive bias, human fallibility and hubris.

Genres: Finance, Business, Nonfiction, Economics

128 pages, Hardcover

Published April 28, 2020

About the author

Paul Marshall is CIO, Chairman and co-founder (with Ian Wace) of Marshall Wace LLP, one of the world's leading hedge funds. Marshall Wace was established in 1997 and has won multiple awards for hedge fund performance. It has offices in London, New York, Hong Kong, Shanghai and Istanbul.

Reviews

[John · Rating 4 out of 5]

Short, simple, yet full of powerful insights on the crucial factors of success and failure within the fund management industry.

[Walter Cavinaw · Rating 4 out of 5]

A great collection of investment lessons from a great investor. There were no new or revolutionary insights. If you read a lot of investment books you will be familiar with each lesson but it was great to have them written out in a succinct reminder. This is a short book worth reviewing from time to time.

The lessons are:
- Humans can act irrational. We all hold some incorrect opinions, or have wrong information, or are motivated by things other than truth seeking.
- Markets are made by irrational agents with limited information. Inefficiencies can be exploited.
- Investing skill is real and provable (they have long term data on investor decisions). EMH is based on untested assumptions.
- Markets are short term voting, long term weighing machines. He basically invokes this analogy to show a distinction between short term market moves (liquidity driven, buy sell imbalances) and long term movements (economic fundamentals and value of assets).
- The greatest opportunities occur with periods of change.
- "The best portfolio construction combines concentration and diversification". He means this in a very technical sense: analysts should concentrate on their best ideas, and the portfolio pulls ideas from many analysts to be diversified. I would describe this more conceptually as concentrating into your best ideas, but diversifying across the underlying causal drivers. this encompasses his example where analysts are likely using different mental models (different causal mechanisms) but also includes the single analyst/PM who is not building a portfolio from multiple analysts.
- Shorting is different from being long. Shorting involves borrowing, leverage, more competition, performs in spurts, and is asymmetric (infinity downside, limited upside).
- Superior insight comes from combining machine-intelligence with human imagination.
- Understand you are fallible and know the limits of your knowledge. Use leverage carefully (but don't avoid it) and keep an eye on liquidity. "Never be in a position where you lose your flexibility"
- You need to be big enough to cover necessary research and operating costs, but more importantly not so large that you erode your marginal alpha or become inflexible.
- All investing careers end in failure or "memento mori": During periods of exceptional performance you need to remember that you are never as good as you think you are. And when things are going poorly you are never as bad as you think or others say you are.

[Pratik Kothari · Rating 4 out of 5]

Short, simple but powerful. Couple of chapters in the beginning are very good & insightful.

[Alexander Walsh · Rating 5 out of 5]

There's a Ben Franklin quote that goes. "If you want to be remembered after your death, either do things worth writing or write things worth reading." In the world of hedge funds, Paul Marshall has done both. It is a short read which has some good sections on how the markets function, how to look for catalysts as well as manage risks.

Here are a few snippets to give you a better sense:

"Markets... are highly complex non-linear systems created by a myriad of hal-informed or uninformed decisions made by fallible (human) agents with multiple cognitive biases."

"Catalysts can matter simply because they create a story. Humans like stories. We are storytelling creatures. Since the earliest days when we sat around fires and told tales to give meaning to life and to pass that meaning down to our descendants, humankind has lived through stories. It is no different in the markets. Investors respond to stories. Catalysts make the stories concrete. That is the other reason why 'value with catalyst' is so effective as an investment approach. Provided that the stock has a claim to undervaluation and there is a path to how the value can be crystalized, the thesis can be wrapped in a 'story' and passed on (brokered)."

[Andrew Collier · Rating 3 out of 5]

Lesson 1: Markets are Inefficient
Lesson 2: Humans are Irrational
Lesson 3: Investment Skill is Measurable and Persistent
Lesson 4: In the Short Term the Market is a Voting Machine, In the Long Term it is a Weighing Machine
Lesson 5: Seek Change
Lesson 6: The Best Portfolio Construction Combines Concentration with Diversification
Lesson 7: Shorts are Different from Longs
Lesson 8: A Machine Beats a Man, But a Man Plus a Machine Beats a Machine
Lesson 9: Risk Management - Respect Uncertainty
Lesson 10: Size Matters
Lesson 10 1/2: Most Fund Management Careers End in Failure

I found the last two chapters to be the most relevant and informative, but the whole book is packed with useful and interesting content.

[Sallie · Rating 5 out of 5]

Good read with some insightful gems from Paul Marshall of Marshall Wace. Yes it’s advertising his funds. Yes as is typical for the British - contains some philosophizing. But these didn’t prevent me from getting something out of it.

Author is one of not many uniquely qualified to write about the topic at the level he did, with a 10k feet view.

That said, I am not sure the book was intended for the lay person (retail investor), despite its simple and clear language. For its intended audience, I think it did hit the mark.

[James Manuell · Rating 4 out of 5]

A short, concise book, but nevertheless containing a solid series of ideas. Useful to analysts, PMs, and fund selectors alike. The author illustrates his points with a wealth of references to enlightenment philosophy which may not be so welcome to students of business and accounting etc, but it's clear how much thought has gone into its writing.

[Marius Ciuzelis · Rating 5 out of 5]

Simple yet poweful

Its a great pleasure to read insights from market practitioneer. Although some lessons are very basic and simple, however everyone who works in fund maangement or anyhow related to it will understand how powerful they still are.

[Evan Ratner · Rating 5 out of 5]

Short but powerful

Paul Marshall writes a short but powerful primer on finance and life. If you ever wanted to understand how to create greatness in a financial organization this book is for you

[Glenn Cameron · Rating 5 out of 5]

Great little read with insight into models

Really enjoyed Paul’s accessible writing style in this short but insightful overview of funds under management strategies covering experiences and perspectives.

[Kang-li Cheng · Rating 5 out of 5]

strong insights drawn from real experience

Clearly written by someone who has a lot of experience in investment management. Some of the lessons are a little bit too generic but overall a decent read.

[Graham Hunt · Rating 5 out of 5]

Interesting read

A book worth reading for anyone interested in the industry. Short and insightful from one of the best in fund management.

[Sean Daly · Rating 4 out of 5]

A nice short summary of some interesting and important lessons for all investors

[Alexander Han · Rating 5 out of 5]

Loved every second of this book!

[Nick · Rating 3 out of 5]

Super quick read. Nothing really novel here. Just revisiting some things I had already thought about. Not bad I suppose

[Cleaky · Rating 4 out of 5]

Simple and to the point. Really helpful.

[Nat · Rating 5 out of 5]

Short and easy read, but has some very profound insights that have been driven by experience in both quantitative and fundamental investing, with 20 yrs+ of datapoints to back up the wisdom.

[Sean Thapar · Rating 2 out of 5]

Paul Marshall’s lessons are more like a collection of less that convincing arguments that Marshall Wace is the only hedge fund capable of making money on the stock market. His constant referral to enlightenment science and practices outside of the finance are merely a cover for the lack of content, actionability or insight than this book covers. Experienced investors will only find the topics patronising and beginners will believe that making money on the stock market is linked directly to the size of your own ego.