Before beginning, I need give credit to whom this piece is due – my girlfriend, Kathleen. This credit-giving, beyond being the ethical thing to do, is essential to the credibility of the piece simply because Kathleen is a stylish, (investment management) professional woman who knows a whole lot more about hairdressers than yours truly. Anyhow, on with her idea…
A good hairdresser is often worth the money. I, myself, am a frequenter of Supercuts (and a former and, perhaps, future shareholder of RGIS) and, as evidence to this opening sentence, am still yearning for a first compliment on my “do.” I digress. Hairdressers are skilled at optimizing their clients’ mops and have been known to pull off transformational miracles from time to time. But here is where it gets interesting.
According to Kathleen, it is the very rarest of hairdressers who has a truly outstanding hairdo, his or herself. This is obviously not for lack of skill, or being able to identify others with the necessary skill to work on their heads. It is not for lack of concern or care; heck, their own hairdos should be a cornerstone of their advertising. No, the reason for the sub-optimal products on the tops of our hairdressers’ heads is, in two words, accumulated novelty. It is this concept that should be a warning to investors.
Our hairdressers spend their days in the product and style over-populated world of hair. There is always a new product for this or that, or a new style that need be tried – a new curl, new streak, or even a full-on dye (die?) job. Being so close to the action (one could say they are, in fact, the action) – the proximity effect, if you will – incites our hairdressers to perpetually pursue that which is stimulating and new, that which is novel. This is all fine and well until, as even I know, the accumulation over a decade plus of harsh chemicals on our hairdressers’ heads takes its toll and our tragic skilled laborer protagonists are left with damaged heads of hair.
As investors, we, like the hairdressers, are constantly barraged with novel approaches to our art. They may be entirely novel, but far more often than not, they are simply different (and thus novel to us) approaches than those we have been successfully practicing. What is worse is that these novel approaches are often perfectly rational and have worked for someone else. Now, before going further, it is important to note that I am a believer in personal growth, learning, stretching, experimenting – whatever you want to call it. It is a healthy and necessary part of being human. However, and this is the point of the piece, we must be extremely careful to not fall too much in love with the new.
Go ahead and try something out – see how you handle it and see how it works; but do not neglect that which you have proven you can do. Furthermore, be mindful of the psychological factors at work when we are doing something outside of our proven zone. Novelty can be very seductive and, as such, can be addictive and ultimately destructive, especially as its deleterious effects accumulate over time. The stimulation that the pursuit of novelty provides does not equate/has absolutely nothing to do with alpha. Remember the hairdresser phenomenon and protect that head of yours!
A good hairdresser is often worth the money. I, myself, am a frequenter of Supercuts (and a former and, perhaps, future shareholder of RGIS) and, as evidence to this opening sentence, am still yearning for a first compliment on my “do.” I digress. Hairdressers are skilled at optimizing their clients’ mops and have been known to pull off transformational miracles from time to time. But here is where it gets interesting.
According to Kathleen, it is the very rarest of hairdressers who has a truly outstanding hairdo, his or herself. This is obviously not for lack of skill, or being able to identify others with the necessary skill to work on their heads. It is not for lack of concern or care; heck, their own hairdos should be a cornerstone of their advertising. No, the reason for the sub-optimal products on the tops of our hairdressers’ heads is, in two words, accumulated novelty. It is this concept that should be a warning to investors.
Our hairdressers spend their days in the product and style over-populated world of hair. There is always a new product for this or that, or a new style that need be tried – a new curl, new streak, or even a full-on dye (die?) job. Being so close to the action (one could say they are, in fact, the action) – the proximity effect, if you will – incites our hairdressers to perpetually pursue that which is stimulating and new, that which is novel. This is all fine and well until, as even I know, the accumulation over a decade plus of harsh chemicals on our hairdressers’ heads takes its toll and our tragic skilled laborer protagonists are left with damaged heads of hair.
As investors, we, like the hairdressers, are constantly barraged with novel approaches to our art. They may be entirely novel, but far more often than not, they are simply different (and thus novel to us) approaches than those we have been successfully practicing. What is worse is that these novel approaches are often perfectly rational and have worked for someone else. Now, before going further, it is important to note that I am a believer in personal growth, learning, stretching, experimenting – whatever you want to call it. It is a healthy and necessary part of being human. However, and this is the point of the piece, we must be extremely careful to not fall too much in love with the new.
Go ahead and try something out – see how you handle it and see how it works; but do not neglect that which you have proven you can do. Furthermore, be mindful of the psychological factors at work when we are doing something outside of our proven zone. Novelty can be very seductive and, as such, can be addictive and ultimately destructive, especially as its deleterious effects accumulate over time. The stimulation that the pursuit of novelty provides does not equate/has absolutely nothing to do with alpha. Remember the hairdresser phenomenon and protect that head of yours!
