Per Mr. Munger’s recipe, I spend a great chunk of my day reading. Newspapers, annual reports, earnings releases, 10 Q’s, non-fiction knowledge builders, and even the good old fiction novel from time to time.
I also read a lot of what fundamentally-based, value investing colleagues have to say. In the last year or so, I have begun penning my own thoughts for others to enjoy or scoff at (right now, I’d say the jury is about equally split). Recently, while plowing through my daily readings, a disturbing thought struck me; I share this as a warning for both my fellow value writers and well as myself. The value journaling community seems overly interested in what other “investors” are doing theoretically. How often do we encounter phrases like “most investors make the mistake of…” or “the common response of the (common) investor is to…” Academic studies, especially in this age of behavioral finance worship, about what a group of college students do when locked in a room (on Thursday night right before bar time) with fake money decisions are held up as end-all, be-all science that condemns the “average person” to the dungheap of irrationality. I say enough already with this average investor boogeyman we are creating. It is essentially useless and may even be dangerous for our own psychologies.
We value investors, in general, seek contrarianism. When people gang up on a stock, we begin to explore ways of taking the other side. Nothing wrong with this at all, especially and provided that we can make money over the long-run operating this way. As for this average (poor sucker) investor creation that we encounter in our own literature (mine included), he simply does not exist. The markets have millions of participants buying and selling everyday for millions of different reasons. Even if there were an average investor at a point in time, people and situations change and grow, learn, get worse, quit; this average investor, and how and why he is investing, is not static.
I honestly believe we are fooling ourselves, and unnecessarily so, to create an archetype of an investor just so that we can be contrary to him. In fact, the only reason I can make out that we create this guy is to justify our own contrary superiority (i.e. to feel good about ourselves). As we all know, investing is a rational game; feeling good has no place anywhere in our endeavors (unless, of course, it’s enjoying the superior value we have created for others over a substantial amount of time). As realists that seek fundamental, reality-based reasoning to generate returns on our capital, let us not slip into emotional harangues over why the other guy, the average human is so stupid. Let him do what he does (which we have no way of pinpointing at all) and wish him well.
Also check out:
I also read a lot of what fundamentally-based, value investing colleagues have to say. In the last year or so, I have begun penning my own thoughts for others to enjoy or scoff at (right now, I’d say the jury is about equally split). Recently, while plowing through my daily readings, a disturbing thought struck me; I share this as a warning for both my fellow value writers and well as myself. The value journaling community seems overly interested in what other “investors” are doing theoretically. How often do we encounter phrases like “most investors make the mistake of…” or “the common response of the (common) investor is to…” Academic studies, especially in this age of behavioral finance worship, about what a group of college students do when locked in a room (on Thursday night right before bar time) with fake money decisions are held up as end-all, be-all science that condemns the “average person” to the dungheap of irrationality. I say enough already with this average investor boogeyman we are creating. It is essentially useless and may even be dangerous for our own psychologies.
We value investors, in general, seek contrarianism. When people gang up on a stock, we begin to explore ways of taking the other side. Nothing wrong with this at all, especially and provided that we can make money over the long-run operating this way. As for this average (poor sucker) investor creation that we encounter in our own literature (mine included), he simply does not exist. The markets have millions of participants buying and selling everyday for millions of different reasons. Even if there were an average investor at a point in time, people and situations change and grow, learn, get worse, quit; this average investor, and how and why he is investing, is not static.
I honestly believe we are fooling ourselves, and unnecessarily so, to create an archetype of an investor just so that we can be contrary to him. In fact, the only reason I can make out that we create this guy is to justify our own contrary superiority (i.e. to feel good about ourselves). As we all know, investing is a rational game; feeling good has no place anywhere in our endeavors (unless, of course, it’s enjoying the superior value we have created for others over a substantial amount of time). As realists that seek fundamental, reality-based reasoning to generate returns on our capital, let us not slip into emotional harangues over why the other guy, the average human is so stupid. Let him do what he does (which we have no way of pinpointing at all) and wish him well.
Also check out:
