I have recently finished a book by Jeroem Bos, a deep value investment fund manager.
In it he details a number of case studies of investments where prices were significantly below the value of assets; in value investor speak “net nets”.
I don’t have the personality to do the sort of forensic examinations required to be a deep value guy, too much detail, I’m more of a big picture person, which can admittedly be viewed as an excuse for being lazy and unfocused.
It’s much easier to talk in big hubristic generalisations of imagined future paths best travelled (politicians make a living at it as do economists) but I remember being told the story of an army platoon lost in a jungle.
They were unsure of which direction to go so it was decided to start hacking out a path so they felt like they were doing something.
After a good while it was suggested someone climb a tall tree to get an overview of the situation.
This was done and the person once atop started yelling down, “we are going in the wrong direction”.
The officer in charge replying.
“I don’t care, we are making tremendous progress.”
The moral of the story as explained to me being.
Effort is only productive when the direction is correct, otherwise it takes you further away not closer to where you want to end up.
So big picture thinking has a value, that’s my excuse anyway.
Don’t do it like them
One of the most successful (and easiest because it’s NOT doing something so a reward for inaction) ways of investing profitably is to use the faulty thinking and actions of the crowd to one’s advantage.
It is clear that most people are strongly influenced by emotions and that this hinders intelligent rational behaviour.
The crowd emotion prior to the great meltdown of 2008/9 was benign. There were some dissenting voices warning of the dangers of increased leverage, booming property prices, covenant light loans and derivatives but they were ignored because all had been sunny for a good long while.
The reverse however is true today, post-crash the herd is spooked, it’s like the wildebeest hadn’t been attacked by lions for years so they assumed lions had gone, then half the herd suddenly got slaughtered by the returning lions and now each and every day could be another catastrophic lion attack day.
The sensitivity to danger humans experience is profound and long lasting, the extreme example being post-traumatic stress disorder. When a person survives an extreme event but is forever haunted by it; expecting and fearing a repeat.
If you want to get on business TV the easiest way is to state the markets are going to crash soon, it is well known that many more people watch or read when it’s scary stuff; but gentle, subtle, nuanced, not so much.
The reality today is that markets are back to their normal selves in general, climbing the walls of worry, up a bit down a bit but basically overall up a bit.
Ukraine
As an example the Ukrainian situation appears to have settled down, that’s not surprising in the sense that ‘what exactly did everyone really expect Russia to do?’
Push for as much as they could get, given the cards in play, sure, risk a war with the West by invading? Hmmm…..
The only way it was going to get completely out of hand is if Putin was or is actually mad and he’s almost certainly not, he is a pragmatist, he doesn’t have the same human rights concerns as the West but he’s highly unlikely to risk an all-out war he and Russia can’t hope to win.
Market metrics
The markets rise since 2011 has been hated on by many saying, ‘It’s still broken, it won’t last, central banks are causing even worse problems etc etc.’
But, it’s not today historically expensive and the world, in fits and starts, is consuming and growing again.
A host of golden daffodils
The point of this blog is to make the point that there appears still to be an amount of residual Post Traumatic Stress with investors, the sense that the lions are waiting to pounce.
This is not a bad thing, in fact it’s good in that healthy scepticism and refusal to’ drink the cool aid’ is what keeps valuations tethered to reality, but it’s also useful to realise that the lions were a self-inflicted plague on the collective houses of the greedy; unquestioning and fraudulent.
They caused the attack themselves by their collective blind stupidity, so logically they should in fact be fearing their own actions not those of the market.
This is the logic of crowds; collective thought amplifies the power of the consensus to become pervasive.
As they are often emotionally biased they are often wrong and that’s why it’s best to walk (over hill and dale) lonely from the crowd.
NOTE: This is written in a personal capacity and reflects the view of the author. It does not necessarily reflect the view of LWM Consultants. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog and the reader should accept that by its very nature many of the points are subjective and opinions of the author. This is not a recommendation to buy any product or service including any share or fund mentioned. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.