“If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament. You need the ability to detach yourself from the views of others or the opinions of others.” — Warren Buffet
Warren Buffett, arguably the most famous portfolio manager (and now CEO!) of his generation and the fourth richest person in the world, may just inspire your next career move. Portfolio management, a facet of the broader categorization of asset management, appears a very profitable career within finance.
If you possess an interest in economics or finance, keep scrolling for an in-depth guide on portfolio management.
What does a Portfolio Manager Do?
The broadest description of a portfolio manager’s job consists of managing all aspects of a person’s financial wellbeing. As a portfolio manager, you act as an advisor for your client. Your client may be an individual, a family, a specific government or an entire corporation. Portfolio managers invest and manage assets in a way that achieves the goals laid out by clients. “That means not selling products, or doing things that benefit the portfolio manager, it should be 100% client-focused,” CEO of Irvington Capital Mickey Elfers said. A portfolio manager must evaluate pros and cons of the investment decisions they make, causing this career to have both high risk and reward. Due to this, developing the skills to help clients navigate the practical and emotional aspects of their money remains crucial.
- Read corporate financial reports (i.e. annual reports)
- Analyze financial statements, such as income statements and balance sheets
- Listen to quarterly earnings conference calls that corporate managements host
- Attend various industry conferences hosted by Wall Street investment firms
- Interview corporate managements
- Create earnings and cashflow spreadsheets to forecast future corporate performance
- Apply research to make investment decisions for the portfolios that you manage
What does it take to become a Portfolio Manager?
Getting into the portfolio management industry remains very competitive given the monetary payoff this career offers. To qualify for an investment firm position, you will need an accounting, economics or finance degree along with an MBA and/or CFA designation. “Today many candidates even have a liberal arts undergraduate degree and an MBA, which they follow up with a CFA chartered financial analyst after working as an analyst of some sort for several years,” Senior Managing Director at PNC Bank Jeff Simon said. Obtaining CFA designation requires passing the CFA exam, showcasing significant work experience, and reference letters to back you up. Earning this designation has many tangible benefits for aspiring portfolio managers, as it comes with networking benefits and serves as a recognized honor in the eyes of employers.
What you should know about becoming a Portfolio Manager?
Portfolio management remains a very profitable industry, with average salaries starting at $100,000. In addition, most investment firms compensate further based on the portfolio manager’s ability to gather new assets. As with any job, hours will vary from 40 hours/week to unlimited, so, unfortunately, no scope for “overtime” compensation exists. In light of the COVID-19 pandemic, work environments change rapidly. Virtual offices may become the new model even after a vaccine becomes widely available.
However, in the past, portfolio managers worked in traditional offices, usually located in major cities. “The investment industry has changed dramatically over the past 40 years; it is much more driven today by financial technology than personality or skill. When I started in 1980, my compensation was 100% commission. Today, that pay structure is gone, replaced by fees. Now fees are coming down, so the industry is trying to find a new compensation structure. My guess is that PM’s will make less going forward,” Elfers said. In terms of the future of portfolio management, it remains to evolve to embrace the newest technology.
Key skills you need to become a Portfolio Manager
Written and oral communication skills, a balance between confidence and humility, and a natural curiosity about how the world functions on an investment level are all important skills. First off, an invaluable asset in portfolio management remains the ability to communicate with both your clients and other team members. In addition, the ability to market oneself and recruit new clients stands as crucial if you want to achieve success in this profession. Secondly, a balance between confidence in your decisions and the ability to make mistakes remains crucial. “A portfolio manager must have enough confidence in his ideas that he will ‘pull the trigger’ but also important to appreciate that mistakes are inevitable, and therefore to size investment positions and egos accordingly,” Senior Managing Director Dan Adler said. Finally, portfolio managers must analyze corporations and the climate of domestic and foreign economies to base their investment decisions. Ultimately, they should possess an interest in such areas of study.
- Risk-taking and adaptivity
- Independent thinking
- Critical analysis
- Ability to see trends amongst data points
- Accounting, finance and economics educational background
- Confidence in your decision-making skills
- Quantitative abilities
- Good with numbers
- The ability to think long term versus short term
“It is different for me after 40 years, vs. a 30 something person who has been in the markets for five or six years. I have seen interest rates go from 20% to zero, lived through a decline of -30% in one day and 2 declines of -50% plus. I understand how much things can change, and that I can’t predict what the market will do next week, or next month or next year. If someone can’t live with that level of uncertainty, this profession may not be the right choice,” CEO Elfers said.
“The ability to be able to communicate your insights and analysis both verbally and written is very important as a team member and as a steward of capital for your client, who in the end is who we work for. I’ve managed union employee pension plans, hospital plans, and widows and orphans in the mutual funds so the impact was very real in how we acted and reacted to everyday challenges,” Senior Managing Director at PNC Bank Jeff Simons said.
“Like nearly every profession, there are positive and negative aspects. When you form a hypothesis [on] how a certain investment will play out and invest and you end up being correct, it’s very rewarding, not just financially but intellectually as well. The flip side is when you make an investment call and you end up being wrong; that not only feels lousy but when clients who have entrusted assets to you lose money, that feels even worse than making a wrong call with only your personal assets on the line. Net net, with all of the ups and downs of the markets and specific investments, I have enjoyed working as a portfolio manager. I continue to learn a lot, have worked with some great people, and hopefully have added value for our investment clients,” Former Senior Managing Director at JP Morgan Asset Management Dan Adler said.