Street Capitalist: Event Driven Value Investments

These days Alice Schroeder gets a lot of hate for her biography The Snowball, about the life of Warren Buffett. It’s still my favorite Buffett biography because it gives you the most in depth view of his early life as an investor. People complain about all the pages dedicated to his personal life, but if you really want, you could just skip through those parts. You’d still end up with more information than what’s in the Lowenstein book.

My friend Miguel Barbosa of Simoleon Sense has an interview with Schroeder and it’s worth a read, especially for people who are interested in insurance. Also, Schroeder is featured in The Confidence Game which details Bill Ackman’s short selling campaign against MBIA.

Miguel: This reminds me of James Grant indicating a great way to make a name is to follow unpopular paths and recommend shorts.

Alice: In a normal market, it is tough to be the naysayer, but the past few years have been a heyday for shortsellers. With so much hedged money, there’s also far more demand for diverse opinions today. In general, though, the human race is biased towards the positive. You have to be optimistic to go through life.

There’s also some interesting research that shows that people who speak out critically are viewed as smarter than those who give only uncritical applause, even though they are less liked. In the long run, the price of popularity is paid in respect.

Miguel: Two things I wanted to go back to; first your experience as a regulator and how this taught you how games are played; and second, you mention the importance of being skeptical. Is this an inborn trait or can analysts, investors, and others develop this trait (if so how)?

Alice: We may have a natural bent one way or another, but it is very strongly shaped by experience. As just one small example, when I worked on the E&Y transition team, it was fascinating to see first-hand the amount of friction, wasted time, and lost energy that inevitably occurs in a merger integration. And this was quite a successful merger. So you can imagine how skeptical the experience made me of projected “acquisition synergies” in deals I later covered or took part in on Wall Street.

My experience in regulation was also immensely useful in this respect. It exposed me to dozens of people lobbying for an outcome. This is a side of human behavior that we see much less often as an analyst or investor. Try as they might, people aren’t putting their best foot forward when they’re lobbying you; they’re putting their greedy foot forward. Also – and I have never said this before in an interview — being in the presence of a blonde has an interesting effect on some people. It can get tedious to be underestimated, but has its advantages. Certainly, it raises one’s skepticism.

The Forging Of A Skeptic- From Accountant To Buffett’s Voice On Wall Street

I thought the bit about getting exposed to regulation was really interesting. I feel as if investors who come from a regulatory background have a good edge for analyzing financial stocks. Todd Combs, Buffett’s latest hire has that kind of a background and he has done quite well for himself.