You Don’t Design a House Based on a Weather Report

You don’t design a house based on a weather report.

Robert Frey

When I first heard this analogy from Robert Frey, a former hedge fund manager and quantitative investor, whose firm was bought out by Jim Simons’ Renaissance Technologies, an investment management company who’s performance trumps those of Warren Buffet’s Birkshire Hathaway, I thought it was so simple, yet absolutely brilliant. How true it is.

A snapshot of Jim Simons’ Renaissance Technologies

While many believe that value king Warren Buffett is the greatest investor of all time, his 17.1% average annual return over the last 29 years looks very pedestrian compared to those produced by the 90 PhDs employed by the $10 billion quant shop, Renaissance Technologies.

According to Bloomberg, the notoriously secretive hedge fund has delivered an extraordinary compound annual average return of 40.6% after its 5% annual and 45% out-performance (pa) fees since 1988 (or 2.4 times annually more than Buffett).

If you want to know more about Simons, check out this TED interview titled, “A rare interview with the mathematician who cracked wall street”. The man is a genius.

Anyway, Frey’s quote got me thinking about the similarities between architecture and portfolio management, and how similarly the two professions think.

Architects and Advisers love clients who come to the table with something to say. Clients who have thought about their goals, their ideas, the things that are important to them. It is the basis from which the design will evolve.

Architects and Advisers are trained professionals who have spent years studying, and gaining experience. You hire them as a wealth of knowledge to contribute. So be open to new ideas.

Architects and Advisers (good architects and advisers) will take the long-term into consideration. You want your project and money to last, without having to put more money into it. If you want a classic home, don’t fill it with trendy ideas that will fizzle into the future.

In the end, you need to feel confident and comfortable with, and trust the professional you engage. You’re going to be a team. It’s a personal journey.

As you wouldn’t build a house based on a weather report, don’t build an investment portfolio based on an investment forecast. The weather changes daily, so too do the investment forecasts.

Like you would with your important project, be clear on your vision, and think about what you want to get out of your investments. Seek professional advice. Be open to new ideas, and please, don’t cut corners on the finishings of your dream home. You know it’s not worth it.