“Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.” John Maynard Keynes.
This is unquestionably one of my favorite quotes. It reveals more about an investor’s frailty than any other thought I can find. To this point, the Wall Street Journal recently published an article entitled “So That’s Why Investors Can’t Think for Themselves.” In this article they explore a recent study published in a scientific journal which concludes that the value one places on something is highly correlated to the opinions of others. If others agree with you the value rises to you, and if they disagree the value declines. Interestingly, when monitoring the areas of your brain that regulate such emotions as pleasure, they actually found increasing levels of activity as others joined in support. In other words, at a biological level, going with the crowd, conformity, actually feels good.
So now investors have a new and higher hurdle to jump over because the physiology of the body is actually encouraging the drive to consensus and most probably discouraging critical thinking. This is highly problematic because the quest for great investing demands unconventional views. Charlie Munger says that the obligation of any great investor is to seek out disconfirming evidence to kill your own ideas. Now we understand that the obstacles are not a matter of education but genetic evolution.
So what can you do? We have begun to piece together some articles to help you develop investment disciplines which can make you a better investor, and I would encourage you to reread some of them. But to this specific problem I can think of only one rational and disciplined response: slow down. This is a more powerful thought than you think. The world is increasingly complex, global and fast paced. The internet has certainly done a great deal to usher in this new reality. In response, the stock market has become much more short-term oriented, seeking out crowd behavior to make returns. We have argued previously that this crowd behavior has led to the marginalizing of returns which has produced the poor investment performance of the past decade plus. In my opinion, to simply slow down puts you on an unconventional path and thus offers the investor the opportunity to create unconventional returns. And possibly, it might even feel good.
---The author, HUMMoney contributor Greg Lewin is currently a General Partner at TLF Capital, an investment management firm. During the past 26 years he has been a senior money manager or partner in Wall Street firms including Neuberger Berman, Charter Oak Partners and Sailfish Capital.