Knowing When to Walk Away

Nominators of Matt Hershey for Family Office Investor of the Year, one of the categories celebrated at the Allocators’ Choice Awards in September, cited his sound judgment, including the ability to know when to skip an investment opportunity that others might be flocking to.

With the big event just a few months out, and voting underway, I thought it was time to speak to Hershey about the topic. 

Fad investments can be hard to ignore. Be it meme stocks or niche sectors, whether driven by social media, fear-of-missing-out, or even something more sophisticated that has caught the attention of peers, saying no to potential gains and sharp price surges is difficult. 

“Things become very popular in the zeitgeist and sometimes they pay off fantastically and you want to ride the wave,” said Hershey, CIO of Marron Capital, the family office of the Marron family. “But things that become the topic de jour often disappoint.”

If you look back over the past five, ten years and study what was really in vogue during that time, the pattern is clear. Some fad investments are not outright disasters, and may even deliver decent returns, but over time those gains barely justify the opportunity costs.

Instead of jumping in headfirst, he advocates a disciplined approach and asking hard questions, including examining the assumptions you have to accept for the investment to work and how much your thinking is influenced by others or the press. Instead, focus on the reality of the numbers in front of you.

Following this approach and skipping opportunities that might appear to be good investments in the short term has “kept us out of trouble,” said Hershey, even if it has meant missed opportunities.

For family offices, there are differences to investing that must be considered.

Certain popular investments might be ideal for retail or institutional investors, but not for a family office.

A tax inefficient investment might lead to a big haircut in returns, for example. “You really need to be paying attention to that and go back to first principles,” he said.