Sunday, August 30, 2015

Fleeting Rush

Within the school of people who invest based on what they estimate the intrinsic value of a business to be (Fundamental Investors) there are two opposing views. Lots of investment philosophy gets simplified down to aphorisms. Short truths, better if they rhyme or are witty, that illicit knowing nods of approval. You hear these sayings more often than you dig up actual statistical evidence of their truth. Two competing head nodders (some will nod for both) are:

  1. There is nothing as fleeting as a great investment idea.
  2. There is seldom a good reason to rush.
The first one strikes the fear of God into any aspirant investor. You best be prepared to drop absolutely everything and get to wrapping your head around what has happened before the opportunity vanishes forever. Life needs to be prioritised around the engine that lets it happen. Yes, other things are more important, but they can wait. Great investment ideas can't. These investors are famous for sweating the small stuff. The stories of millionaires and billionaires who still clip coupons and take the bus or walk rather than take a taxi. These stories are comforting for investors who don't want to or can't spend the time required. They have a super smart person looking after their money for them. Not just super smart. The super smart person is super hard working.

The second group requires much more trust. They treat investments in a similar way to hiring employees. You do your due diligence up front, and then with periodic reviews. You get to know the employee. Well. You decide if you think they are smart. You decide if you trust them. You know they will make mistakes, but you know too they have a track record of resilience. They also understand the issues better than you and are likely to make better decisions than you in the face of whatever random events come their way. When crazy things happen, the default if you don't understand is to do nothing. Take your time. Do you homework. Act seldom. Trust, but verify.

One of the hardest things to do when trouble comes up is nothing. We are biased to action. Accepting that others may be better qualified to respond to things you don't understand feels disempowering. The thing is, trust is very empowering. Trust lets you look at other things. The manager who trusts their employees can push decisions down to where they are best made. Employees with managers who trust them can spend less time explaining themselves. More time adding value.

I think both of these schools have value. I know great investors in both camps. The ones in the second camp do tend to sleep more soundly. 'Better sleep. More happy.' is Trevaphorism. I don't have the stats to back it up, but I trust you are nodding.

Seldom a good reason to rush
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