Practical analysis for investment professionals
25 May 2017

Book Review: Even the Odds

Even the Odds: Sensible Risk-Taking in Business, Investing, and Life. 2016Karen Firestone.

Many investment practitioners are already well acquainted with Karen Firestone, who worked as a leading analyst and portfolio manager at Fidelity Investments for more than 20 years. After leaving Fidelity, she cofounded Aureus Asset Management, shifting her responsibilities to firm leadership at a company providing asset management for families and individuals.

What may surprise those who know Firestone only as a consummate investment professional is that her writing is a total delight. Her approach to risk management in business, investing, and life, as told in Even the Odds, is intelligent, disciplined, and rooted in conscience. Her charming and conversational prose style imprints readers with unforgettable real-life examples of risk taking.

Firestone defines four tenets of sensible risk taking:

  1. Right-size your risk.

  2. Right-time your risk.

  3. Rely on knowledge, skill, and experience.

  4. Maintain a healthy skepticism.

She delivers memorable stories to underscore each tenet, with some illustrations touching on all four. One, dealing with the tech bubble of the late 1990s, will resonate with all readers who lived through that debacle and will inspire those who joined the industry during the past 15 years.

Firestone articulately applies her four tenets to the errors committed in that period, which she describes in living color:

  • Right-sizing: The book details the consequences for professional investors who cast aside valuation metrics and chased the tech bubble in 1999 and 2000, believing that stock prices’ geometric growth, without corresponding growth in such fundamental factors as sales and earnings, could continue.

  • Right-timing, relying on experience and skill, and maintaining a healthy skepticism: Disregarding common sense by investing in companies for which fundamental value was 50% or more below their stock prices resulted in horrendous investment losses that proved nearly impossible to recoup.

Firestone provides examples of investors who stuck to these tenets, risking ridicule and underperformance through wide divergence from their benchmarks, to vindicate the long-term effect of her recommended approach.

The author tells her story with genuine humility, even though she is an investment master. She writes of great investment success that arrived only after quarter upon quarter of analysis and observation combined with sensible risk taking.

Firestone also recounts some risk assessment mistakes, which seem to emerge from incomplete analysis more than any other factor. Her experiences with Green Mountain Coffee Roasters, Kythera Biopharmaceuticals, Allied Irish Banks, and Twitter had me reading and re-reading sections of the book. She tells readers why she bought shares (or did not), how she determined price targets, what changed the price targets, and her actual investment outcomes. Rarely does an investment manager discuss such matters in depth with anyone other than her colleagues.

In the chapter “Masters of the Trade,” readers will enjoy spending time with the all-stars of risk assessment: Peter Lynch, George Vanderheiden, and Gordon Crawford. For many of us in middle age, these individuals were our investment heroes. Firestone learned well from these exemplars of wise risk assessment. In this chapter, a phrase associated with Lynch — “Great, great, great . . . ” — is mentioned in an unexpected context.

In “Running,” Firestone relates how a seemingly harmless connection turned out to have a sinister dimension. Her on-target assessment of the facts protected her, both physically and from a reputational standpoint. This chapter near the end of the book leaves a particularly lasting impression on the reader.

My sole criticism of Even the Odds is that the print edition lacks an index. Although it contains detailed notes for each chapter, some assistance is needed to keep track of the huge number of companies and individuals referenced in the course of the narrative. An index would also help readers locate the case studies for particular stocks much more quickly.

Aspiring and existing investment professionals should consider Even the Odds essential reading. Firestone provides abundant real-life investment dilemmas, along with their resolutions for better or worse, and in doing so also produces a compelling memoir. She is a true “master of the trade,” practicing and honing her exceptional decision-making and risk assessment skills in investing, in leading Aureus, and in living. Let us hope she writes again, and soon! The book’s publisher, Bibliomotion, believes there is a winning formula in exceptional content, visible authors, community building, goodwill, high touch (close collaboration between publisher and author), and fun. Even the Odds fulfills all of these criteria.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

About the Author(s)
Janet J. Mangano

Janet J. Mangano, formerly a senior portfolio manager with PNC Wealth, is in Short Hills, New Jersey.

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