The path to becoming a Portfolio Manager

Throughout my career, I have helped train and mentor a number of aspiring portfolio managers. Many find themselves prepared for various technical aspects of the job i.e. how to trade certain products, how trades settle, how to calculate risk, how to build a portfolio, how to manage stop-losses etc. In my opinion, these technical skills will not be the biggest problem faced on the journey, but rather the emotional issues that accompany it and sadly most people do not enjoy that aspect of the job.

For most becoming a portfolio manager is not a good career choice, but for a small number it is perfect. Therefore, one of the things I try and help aspiring managers to understand is the different stages they will pass through.


Stage 1 – Observer

This is the stage where people have shown real interest in financial markets. They follow the news, read analysis, develop their technical knowledge and skills, and enjoy forming market views and expressing them to others.

A common error for an aspiring PM is to think this stage is a long way along the road. A key element is the lack of clear feedback mechanism; or rather feedback is likely to be qualitative (perhaps social i.e. do people like what they say and write) but unlikely to be quantitative or objective.


Stage 2 – Paper trading

This is a helpful stage that I push aspiring PMs towards – I explain that this is what I did myself. My observation is that those who will become successful PMs will have already done this sort of activity on their own. After all who could stop them?

Paper trading is the stage where people can realise if they care enough about forming views and narrative about financial markets, or care about playing a game in which you keep score by how many dollars you gain or lose. Paper trading becomes engrossing because it is an active feedback mechanism on your decisions and thus the only way you could ever improve. All I do at this stage is help them think about trading and how to evaluate their decisions for themselves. The key is that only those that enjoy it and like keep to score in an honest way, can actively progress from here.

Most aspiring PM’s actually stop at this stage and soon revert to stage 1. Some get bored, some use their paper portfolio as a means to signal their “view” e.g. bullish the Australian dollar, much like a research strategist does. The preference to talk about trades where they were “right” often becomes dominant, rather than all the other lessons they learnt. If I point out that their overall paper portfolio has lost money they will often blame “money management” or “risk management” as though this is some technical add-on that is of secondary importance to their view formation.


Stage 3 – trading real money (small)

At this stage, aspiring PMs are often shocked to find out how much worse they perform than when they ran a paper portfolio. To the outside observer, it may appear identical, but for the participant I would highlight these key differences:

It is public
Actual P+L in a firm will be reported. In a paper portfolio you are free to make any decision you want and the only person who will ever know about them is yourself. Once real money is at stake, all your decisions are visible, and can be can be looked at much later by other people who will judge them. In this respect it is similar to my very first blog post “How to Write“, your thought process will change in the same way that writing in a private diary is different from an essay submitted to a teacher.

It is real money
I remember being really stressed at this stage in my career, partly because I was so bad at it! I kept losing money. It felt real to me. I would lose perhaps $500 on an FX trade and this felt like a lot of money. I could buy a TV for that. I struggled to understand why my bosses were so relaxed and tolerant of me throwing the firm’s money away. Later once I was the manager I understood that this is a cost of training and most people really struggle at this stage.

It matters for your career

This is especially tough as you are starting to take risks with your future. You need to persevere, building up evidence to convince people to give you more money to trade. It is hard to predict who will make this transition and who will fall back into the far more numerous careers in stage 1.


Stage 4 – trading real money (large)

By the time you get to Stage 4, the vast majority of aspiring PMs will have already fallen away. This does not mean that you are now the finished article and that it will be easy from here. Once you start managing larger amounts of money you will face different stresses.

Now your trading decisions will have a material impact on your life and career. If you do really well you will get a large bonus, buy a flat and a nice car. If you do not, you may get fired.

It is starting to be too late to simply go back to Stage 1 and find another path in finance (unlike at stage 3). Here you will be highly vulnerable to Desirability Bias (Desire – The Fatal Flaw). You will want to make good decisions really, really badly. You will really, really want the decisions you have made to be good ones. This can damage the delicate cognitive processes that are required for nuanced decision-making.

Some people struggle here and effectively behave as though they are still in Stage 3. They will take small risks and although they enjoy trading and are good at it, they cannot commit to risking their job and livelihood based upon it. For some reason, I loved this stage. I felt freed up from the restrictions of Stage 3 and had huge (over)confidence in my ability. In hindsight, I still had an awful lot to learn but my confidence and ambition kept me moving forward.


Stage 5 – full-time portfolio manager

Here there is nowhere to hide. Managing money is not just a part of your job – it is everything. The decisions you make will determine whether you can buy the nice house, pay for your kids to go to private schools, what lifestyle you can afford and more broadly your status in society.

My sense of this stage is that the people who really care about money, in the sense of what it can buy you, do not become portfolio managers. There are many safer and more reliable routes in finance to get those things.

The ones who do better are perhaps more like me. I did not care very much about leading a very affluent lifestyle, I had earned enough money in my career not to worry that I would end up in severe financial stress and so leaving the relative security of running a business in a bank did not feel very risky.


What I find striking is how hard is it to predict who will succeed at the various stages.

The people who were outstanding at Stage 1 might be complete failures at Stage 3. Those who were very good at Stage 3 would not come across anywhere near as well as the analysts and strategists in terms of their ability to talk about markets, economics and strategy.

Those who were successful at Stage 3 generally focused on the task at hand (i.e. find something, anything which they could turn into making a profit.) This might mean they became an expert in a tiny section of a market and thus needed to know nothing at all about unrelated areas of finance and broad market drivers. It is the focus on making money that is far more important than a broad interest in financial markets.

To become a portfolio manager, not only do you have to refine your technical ability, you will need add emotional strength to deal with the challenges. This can be even harder to predict.

Career Tips

I was asked recently to speak at an undergraduate event. Part of it was to give some career advice in the form of 3 tips. Here is what I came up with:

Many people after leaving university find adjusting to the world of work difficult and become very unhappy. Focusing on a lack of “meaning” in their job while searching for a “mentor” to guide them, they can quickly come to resent their firm and co-workers.

It does not have to be this way.

The most important thing to realise is that the workplace is not going to feel like an extension of education – it is completely and fundamentally different. For at least the first two decades of your life, focusing on your knowledge and your skills is the key and the whole environment around you is geared to helping you develop. However, the ability of a student to successfully transition into a happy and productive career has remarkably little to do with the knowledge and skills they start with.

What really matters is how well they can change their mindset.

Here are 3 things to focus on:

  1. It’s not about you any more

This is the piece of advice students generally find the most upsetting. A big change in mindset is required to succeed in a work environment compared to the one needed for education.

In education, the student is the product. The ultimate aim for a student, with the help of teachers, is to gain the skills and knowledge required to pass exams. This does not mean that students have complete free rein to do what they want. There will be various restrictions on behaviour, such as a requirement to go to lectures, prepare for tutorials, do reading, problem sets and essays – however these are all designed with the success of the student in mind. The best attitude for the student is to be focused on themselves and their own needs.

In the workplace, the business is the product. The ultimate aim for a new employee is to become useful. Many graduates find this transition to the workplace a shock. Senior members of staff may not think that a key part of their role is to educate you and make you more productive or happy. In a few years’ time, you will also be more senior too and it will be obvious to you that this is not a priority either. You will want to be productive at work, impress your boss, get promoted, get a bonus etc.

Adjusting to this new reality, the best attitude is to be focused, not on yourself, but on the needs of the people around you and of the firm – Be useful! You will then find good things will start to happen to you. Given reciprocity (see “Influence: The Psychology of Persuasion” by Robert Cialdini), people you help will also help you. Senior people will start to spend time helping you learn and improve. You will have signalled to the firm that you have the right mentality to succeed and so will be promoted more quickly, paid more and given more training.

Having a real job is extremely helpful in preparing you for work and choosing a career path. I spent my Gap year working full time as an economist, but working at McDonalds may have perhaps been even better. You need to understand what it is like to be the other side of the counter.

  1. Be flexible.

In education, a targeted focus and narrow determination are extremely helpful for excelling with high results. The world of academia is fragmented and siloed, with status derived from expertise in ever more specialised areas.

The world of work is very different. A modern and successful career will come with many parallel and some orthogonal leaps into new areas, combined with an ability to master a broad range of cross-disciplinary problems.

I could easily have become a consultant or economist and I think I would have really enjoyed it and been successful. In banking and hedge funds, my career could have gone in lots of different directions. The only way to take opportunities is by being open minded.

  1. Work with people you would like to become.

This piece of advice was given to me as an undergraduate, and it has repeatedly proven itself true as my career developed.

Don’t think that you can join an Investment bank for the money and not become like them. Either you will change to fit in, or you will not and you will hate it and leave.

You must judge it from meeting real employees, not from impressions from TV shows. Being a lawyer is not the way it is on Suits just as being a Hedge Fund manager is not like Billions (well mostly anyway). That is why internships are so useful.


The world of work is can be a stimulating and fulfilling experience. For that to happen you need to be able to have the right mindset to take advantage of the opportunities on offer.