Thinking investor tests new paths in today's market

Flexible approaches sought through reading accounts of risk-taking and survival

December 25, 2005|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

Author Laurence Gonzales, an aerobatics pilot, outdoorsman and all-around adrenaline junkie, stood in front of a group of Legg Mason Inc.'s top-flight investment professionals earlier this month and confessed: "I don't know anything about investment or finance or that sort of thing."

But Gonzales, in his khaki jeans and loose-fitting button-down, was more than happy to impart his thoughts on survival strategies to a male-dominated audience in crisp dress shirts and ties.

Legg Mason Capital Management, the company's stock-picking shop in Baltimore, had invited Gonzales to do just that, and gave each employee a copy of his book, Deep Survival: Who Lives, Who Dies, and Why, a thoughtful look at plane crashes, hiking accidents and boat sinkings.

"As it turns out, there are a lot of parallels to the world of investing," said Michael Mauboussin, Legg's chief investment strategist. "Reading like this helps you understand ideas. If you have the same input from newspapers and analyst reports, it's very unlikely for you to have thoughts that are different than others."

Call it the making of the Renaissance investor, someone with broad intellectual interests in the arts and the sciences.

Being well-rounded, the thinking goes, will help you make money. To navigate today's markets, many investment professionals are studying unrelated fields such as chaos theory - the idea that a butterfly wing flapping in Thailand could affect weather patterns in Maryland - as well as psychology, biology, history and so on.

Others are simply exploring other disciplines to get their minds off the markets.

At T. Rowe Price Group Inc., another Baltimore investment firm, the bond shop is reading the biography of Nelson Mandela and popular novels. Employees also are treated to a midday break from interest rates and trade deficits to hear from luminaries in the local art scene.

The cultural enrichment program kicked off last month with talks from Baltimore Museum of Art officials who discussed the latest Monet exhibit before nearly 300 people.

The idea that investors need to be uber-thinkers who not only understand economics but also, say, how a man survives a hair-raising climb down the icy slope of a Peruvian mountain with a broken leg, can be traced in part to Charles T. Munger, the right-hand man to super-investor Warren Buffett. Munger's "mental models" approach would use a principle from physics, such as critical mass, to understand business situations.

Munger, vice chairman at Buffett's Berkshire Hathaway Inc., published his own 4-pound coffee-table tome, Poor Charlie's Almanack: The Wit and Wisdom of Charles T. Munger, this year. It includes speeches he's been making since the mid-1980s.

Industrial psychologist Andrew J. DuBrin at the Rochester Institute of Technology said he's seen a bigger push in recent years to get managers and professionals "to think more flexibly."

The strategies vary from organizing forums with experts in other fields and industries to forming book clubs, or heading into nature with the likes of management guru Michael Useem, who takes his MBA students from the University of Pennsylvania's Wharton School of Business on Himalayan treks. Useem collaborated on the 2003 book titled Upward Bound: Nine Original Accounts of How Business Leaders Reached Their Summits.

Many of the books the Legg Mason investment team has picked up are on the reading list of star money manager Bill Miller, by all accounts a prolific reader. On his desk now is the 400-pager The Origin of Wealth: How Evolution Creates Novelty, Knowledge and Growth in the Economy.

Miller said that in conversations at the office he often had to stop a train of thought and explain something in a book he was reading. "The book club seeks to create a base level of knowledge," he said.

Other books that made the list are The Landscape of History: How Historians Map the Past by John Lewis Gaddis and The Wisdom of Crowds: Why the Many Are Smarter than the Few and How Collective Wisdom Shapes Business, Economies, Societies, and Nations by James Surowiecki.

Gaddis, a history professor at Yale University, examines the concept of historical truths and explains how historians do their jobs by combining the techniques of artists and geologists and biologists. Gaddis also made the trip to Baltimore to chat up his book at Legg Mason.

Surowiecki, a writer for The New Yorker, sought to turn on its head the idea that an elite few are smarter than the crowd. He points to the TV show Who Wants to Be a Millionaire, in which contestants can poll the studio audience or phone someone when stumped by a trivia question. The audience picked the right answer from multiple choices more than 90 percent of the time, compared with 65 percent of the time for the individuals on the phone, according to his book.

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