You get a haircut every few weeks. Everyone does. Men, women, children. Even balding men need a trim occasionally (as I’m finding out, sadly).
But what if I told you that you’ve been doing this all wrong?
What if I told you that your barber, or hairdresser, is terribly under-qualified. That you have been risking your hair — which is just a few centimeters from your brain, after all — to an under-educated, under-trained amateur.
What if I insisted you were making a huge mistake in your barber choice. Instead of your current choice, you should choose another kind of haircutter. A better one. This one should be qualified. He (or she) should be properly educated. He should hold a Ph.D.
In Comparative Literature.
From the Sorbonne.
If I told you that, what would you say?
You’d say I was crazy.
Because having a Comparative Literature degree from a French university has absolutely nothing to do with how you perform at cutting hair. Of course.
But wait a second. Such “crazy” advice is given to us every day. Very smart people, with net worths of millions of dollars… even billions of dollars… regularly follow similar advice.
I’m speaking about the hedge-fund industry. This is an industry that manages almost a trillion dollars of civilization’s wealth. The role of the hedge fund is to produce “alpha” — a fancy way to say that it is asked to produce “market-beating returns.” If you are a wealthy person who, over her lifetime has earned ten million dollars, you prefer not to leave all your cash sitting in a bank, earning negative interest rates, after inflation. You want your wealth to earn a return. And so you give a portion of it to a hedge fund.
Thus the “hedge fund industry” plays an important role in the financial world.
You would think, wouldn’t you, that the people who run hedge funds would want to hire the most talented traders and analysts to work at their firm. You would think that hedge-fund customers would insist upon such a thing. You would think that hedge-fund hiring departments would scour the world, looking for smart people who have creative and interesting ideas about how to manage money — how to create those market-beating returns while controlling risk.
Except… none of this is true.
In fact, the world of hedge funds is bizarrely insular. If you do not live in New York, if you do not live in London, if you did not win the birth lottery by being born in an English-speaking country, if you did not go to Harvard, if you did not get a job at Goldman… well, then, good luck getting a job at a hedge fund. I suppose you can apply, but… don’t let the door hit you on the way out.
Which is strange, when you think about it, because all those qualities: where you live, what language you speak, what name is on your diploma, whether you held a job at Goldman Sachs — all of those things are entirely unrelated to how you will perform as a trader or investor.
In other words, the hedge-fund industry operates as if it thinks all hair-cutters must hold Literature Ph.D.’s from the Sorbonne.
Everyone in the industry knows this is absurd — that the performance of any new hire is orthogonal to where a person went to school, or even if he did; or to where a person held her last job.
I’ll take this a step further. Really smart hedge-fund operators ought to know that hiring one more me-too Harvard ex-Goldman prop trader will generate, at best, me-too performance. Every Goldman clone will have similar “ideas,” will look in the same places for financial opportunities, will pile into the same lame trades, will follow the same stampeding herd.
Here’s an idea. What if we hired hair-cutters who were actually good at… cutting hair?
My company, Collective2, has a mission. It’s a simple one. We are going to destroy the entire hedge-fund industry. We are going to tear it down, burn it to ash, plow salt into its earth.
We think that anyone can generate alpha.
No, not that everyone can… simply that anyone might:
Here’s the thing about trading performance. It’s the one job in the world where it’s obvious who’s good at it, and who’s not. You simply look at the person’s track record. Nothing else matters. Not where a person lives. Not which company he worked at five years ago. The performance matters. That’s it. Period. Full stop.
My company, Collective2, is an open, peer-to-peer investing platform. Everyone publishes their trading, for everyone else to see. If you like someone’s performance, you can follow along, and trade the same way automatically in your broker account. (If people follow you, they pay you a subscription fee.)
Recently, I’ve been speaking to potential investors interested in investing in Collective2, the company that I run.
When I describe my company to potential investors, most people “get it” right away, but there are a few who look at me, their jaws agape, their eyes wide.
“You mean,” they ask, slowly, “that anyone in the world can post their trading track records on Collective2? That you don’t ask about their educational background, or where they live, or even who they are?”
“That’s right,” I answer.
“You mean,” they sputter, now agitated, “that anyone can act as a Strategy Manager… even really terrible traders?”
I always answer this the same way. I say: “Absolutely. And you know what? This is a feature, not a bug.”
Indeed, this is the beauty of Collective2. The whole point of it, actually. To tear down the high gates surrounding the castle of finance. To invite anyone, and everyone, inside. To let people’s performance speak for itself.
Because: if someone is good, their track record — fully visible on Collective2, trade-by-trade, for the world to see — will speak for itself.
And if someone is stinky — and believe me, there are lots of those people — that will be visible, too. And guess what? No one will pay any attention to that person.
Maybe in the old days, before the internet, before it was possible to track people’s trades in real-time, before we developed the technology to publish open, transparent results in real-time… maybe in those dark ages, it made sense to hire only an anointed few people with a certain pedigree, a certain diploma, a certain resume.
But those old days are gone. Sunlight has flooded in, showing the world as it actually exists. Now we can see who is good, and who is bad, at investing and trading.
Now we can hire people to cut our hair, who are actually good at cutting hair. The literature Ph.D.s can continue to wear black turtlenecks, and drink absinthe, and smoke Gauloises, and discuss Foucault; and life will go on for them as before.
But they will not cut my hair.
I’m going back to Gary the Barber, because he does a good job.