Reading Between the Lines

WSJ has an insightful interview with Sam Zell, discussing risk, the crazy domestic real estate market and his investing instincts. I’ve mentioned before a boss in a prior life, Phil Giarrizzo, talking about political campaigns and saying that after all the polling and surveys, at some point, you have to be able to “feel the campaign.”

Is there any doubt that the best investors have an intrinsic ability to outmaneuver markets even beyond what mathematical or valuation models suggest? P/E ratios, technical analysis, macroeconomic outlooks, business/industry breakdowns … of course all these factors can help you make prudent investments. But I think the best investors are able to internalize all the non-linear factors around them and make the best decisions contrary to prevailing opinions or statistics.

This sentiment is one of the reasons I avoid labels like value investing or growth investing, etc. Most people are unable to separate the message from the text. How much harm has been done to the world due to people mistaking the words for the Gospel?

I’ve found most persons I’ve encountered are unable to excel because they are unable or unwilling to think for themselves. The particular field or endeavor is insignificant, whether it’s investing or politics or music or whatever. It is much easier to let someone else tell you how things should be, to copy others, to not go out on a limb.

So people will read a book about value investing or Warren Buffett and they’ll take the absolute wrong lessons from the book — taking the fish tail and leaving the pole behind, so to speak. Maybe they’ll think stocks with a PE above 20 are bad for value investors or cyclical stocks are risky or buy and hold is the only worthwhile strategy.

I’m guilty of this as well. Earlier in the year, during the first subprime sell-off in early March, ABB fell to $15. I’d been watching it for months and had done enough preliminary research to instinctively know that it was a buy at that price. But then I read the Morningstar report which said it was worth some ridiculously low amount like $9 or something and that froze me. Pat Dorsey from Morningstar wrote the first value investing book I ever read, The Five Rules for Successful Stock Investing, and was quite an influence. Anyway, the stock currently stands at $26 and the useless Morningstar analyst wound up adjusting his fair value target on it (after the fact) and I’m still kicking myself over it to this day.

C’est la vie.

More on this topic (What's this?)
Seth Klarman: The Value of Not Being Sure
Even Buffett Isn't Perfect: Chapter 3
Read more on Value Investing at Wikinvest

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