I’ve posted Entry #82 to my weekly Investing: The New Rules column at the Death by 1,000 Papercuts site. It’s called Investing Experts Need a Brain, a Heart and Courage — and Street Cred!
Juicy Excerpt: I think investing is changing and that the most important lesson we are learning is that it is not what is written in the books that matters most but which strategies cause investors to become either more or less emotional. The strategies that cause emotional reactions are losers. The strategies that help investors rein in their emotions are winners.
arty says
Dr. Rob.
Has a nice ring to it.
Street Cred is a funny thing.
I’m sure if you had it (“you” meaning anyone) you could have greater impact. But even guys who do have it like Grantham and Hussman, and even Shiller, are often viewed as odd, permabears, or whatever a cautionary perspective can be taken to be by others who also possess street cred but who speak an entirely different tongue.
And even among advisors with streed cred, there can be very different views on valuations and many other aspects. Of course, more people will read their posts or buy their books. But that isn’t enough either when it comes to the emotional management valuations entail, and some of the fundamental analysis like the absurdity of “forward earnings” suggests.
Rob says
That’s a great point re Grantham, Hussman and Shiller. They have street cred as individuals. But their ideas are still generally ignored.
I think it’s a question of the ideas reaching a certain Tipping Point in peoples’ minds. So long as it is only 5 percent of the messages being heard that are disturbing, we can tell ourselves that the disturbing messages can be safely ignored. That might change when the number gets to 10 percent. Then the feeling might be — These ideas need to be explored. And they might really take off at that point.
It might be that it takes 10 years to get from 5 percent penetration to 10 percent penetration, and then then three years to go from 10 percent to 80 percent. I view Buy-and-Hold as a giant waiting to fall once we can expose a significant percentage of the population to the case for why it should fall.
I agree that there are different views of valuations among those who believe that valuations matters, and hope that that always remains the case. There is no One True Path. We need to continue expressing differences of opinion amongst ourselves for as long as there is stock investing.
I don’t view the emotional management issues as being as difficult as lots of people make out. They are real issues. But we have never seen how well people can do when they are exposed to both sides of the story — Buy-and-Hold has been dominant ever since Shiller discovered that valuations matter back in 1981. I think that most people are going to do a whole big bunch better than many today view as possible once thousands of businesses are formed to help people fight the emotional battle.
None of those businesses stand a chance today. But once we open up the internet to honest posting, I think we are going to see thousands of new tools developed and thousands of new books written and thousands of new sites founded and on and on. I am much more hopeful about the future than just about anyone else out there.
Rob