A select few investors I particularly admire share a common trait: they either currently work at, or have previously been members of, a special team within Morgan Stanley Investment Management.  Burak Alici, a graduate of Columbia University’s value investing program and longtime friend, serves as a Portfolio Manager and recently offered The Manual of Ideas a glimpse into the workings his investment team.

In the highlight below, Burak explains the importance of “hack days” in establishing and nurturing the right organizational culture for intelligent investment:

[embedyt] http://www.youtube.com/watch?v=6NO_7SJTSjw[/embedyt]

(Slightly edited for readability)

We put a lot of emphasis on culture.  As a team, we have a group of people that really enjoy working with each other. We have a fun work environment — it’s funny, when we walk into the office someone asks, “How’s the market today?” and then you just say, “Oh, it’s open, I hope it’s still there.”


When the focus is learning, and you have intellectually curious people, who happen to be nice individuals, and you put them together — it just becomes a fun way to go about the world.  If everybody is comfortable in the way they analyze things, and in the way they can be objective, and then you create an environment where everybody is open — it actually makes you stronger, in a tough environment as well.


At a group level, we have certain activities that really enforce the culture. For example, we have a reading network where people contribute excerpts of articles from non-financial sources and intellectually stimulating pieces. We have group meetings where we’ll go in and talk about non-portfolio subjects, sometimes just fun things. Again, the idea is to distract yourself from the noise and stress and the tendency of the market.


We do events called ‘hack days’ — where we go in and we do historical case studies on companies. To quote someone, ‘I like to learn from mistakes, especially if they’re other people’s mistakes.’ History is full of them, and history doesn’t repeat itself, but we like to learn from it.


In our hack days, we’ve done interesting analyses:


One of the interesting hack days was ‘hindsight capital’ — exploring, in hindsight, if you could pick any investment with a full benefit of hindsight in the last financial crisis what would that have been, and why did people miss it at that time?


Another hack day we did was ‘the anatomy of a blow-up,’ which is pretty self-explanatory.


Now we’re working on ‘jurassic capital,’ where we’re analyzing major companies over five or six decades: what happened, how did they evolve?   It’s quite interesting. You pick up an annual report from the 1920s and you really see how differently people viewed the world, how mighty those corporations were, and how these companies ended up today. I mean, it’s quite amazing. I’m sure most people wouldn’t even know what the largest company in the world was at the turn of the last century.


If we can’t take the lessons of history and take our learnings from that, then we’re missing on a lot of patterns that might improve our decision-making today.