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Noise

Noise is an odd title for a book. In the investment industry the term noise refers to a mild irritant, something inconsequential that’s best ignored. So what could possibly possess me to write a book about this subject?

Maybe possess is too strong a word, but not by much. I became intensely interested in the subject of noise after it dawned on me that we might be making an error with the common definition.

The idea that noise might be something altogether different took hold of me when I looked back on the arc of my career in active investing: there were periods when I was near the top of my heap as a fund manager, and then there were periods when I slipped way down the slope. To say that these episodes of descent were painful and bewildering is to significantly understate the lived experience.

“Noise affects what you see, what you do, and what you get”

I had noticed something similar as a hedge-fund allocator, where I interviewed hundreds and hundreds of fund managers around the world, including some of the very best in the industry. Most of these highly accomplished pros had experiences that were not a million miles from my own. The exact nature of the struggles differed, of course, but my subsequent analysis revealed that there is a small number of factors that gives rise to the majority of these difficulties, and all of these factors have a single common origin: noise. That makes the subject interesting to me, and hopefully useful to you.

In the book I define noise as the set of acute disruptions and chronic disturbances that undermines your ability to function as an investment professional. Addressing the soft issues of noise enables you to reclaim your lost capacity to attend to the hard issues of active investing.

In my work with investment professionals and investment teams, the subject of noise plays a significant part because noise affects what you see, what you do, and what you get. Skilled management of noise gives you a cognitive edge, a behavioural edge, an investment edge.

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