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Don't Just Do Something...Sit There!
“All man’s miseries derive from
being unable to sit quietly in a room alone.” – Blaise Pascal, c.1630
The CFA North Carolina Society recently
hosted a series of meetings on Avoiding Short-Termism across the state.
Jack Gray, Adjunct Professor at the Centre for Capital Market
Dysfunctionality at the University of Technology in Sydney, was kind
enough to allow us to share his presentation with our readers. Jack is
an extremely engaging speaker, and we highly recommend spending some
time with him if the opportunity presents itself. His presentation
identified the sources of short-termism in addition to offering
suggestions for overcoming said barriers, and exploiting long-term value
creation.
Avoiding
Short Termism by Jack Gray
Keynes once observed human nature’s
desire for quick results. Further complicating the problem, investors
are obsessed with information. While the idea that more information
must be better may appear to be intuitive on the surface, Jack reminds
us that this is far from the truth. During his time spent at GMO, he
recalls an old saying that “too much hard work gets in the way of
thinking. In fact, most of the ‘news’ that comes across our screens
today is simply noise. Jean-Marie Eveillard, First Eagle’s long-term
value focused CIO, explains, “It’s very common to drown in the
details or be attracted to complexity, but what’s most important to me
is to know what three, four, or five major characteristics of the
business really matter.” We’ve taken this advice to heart at
Broyhill, and created a simple checklist to guide our decision making
(more on this in a later post).
Making matters worse, we can’t resist
the urge to “do something.” In a peculiar study of soccer goalkeepers,
the authors of The
Case of Penalty Kicks conclude that:
Goalkeepers
choose their action before they can clearly observe the kick direction.
An analysis of 286 penalty kicks in top leagues and championships
worldwide shows that given the probability distribution of kick
direction, the optimal strategy for goalkeepers is to stay in the goal’s
center. Goalkeepers, however, almost always jump right or left.
Because the norm
is to jump, norm theory implies that a goal scored yields worse
feelings for the goalkeeper following inaction (staying in the center)
than following action (jumping), leading to a bias for action. The
seemingly biased decision making is particularly striking since the
goalkeepers have huge incentives to make correct decisions, and it is a
decision they encounter frequently.
When asked why they chose to dive rather
than stand in the center, the goalkeepers explained that at least they
felt like they were making an effort when they dove left or right.
Turns out, they would have been better off following the clever advice
of the great philosopher, Winnie-the-Pooh – never underestimate the
value of doing nothing.
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Hey Chris, enjoy reading your posts - you and John Hussman provide a clear sense of rationality in spite of what is clearly an irrational investing/financial world right now. I know many of the "B" family as I attended a school near Lenoir many years ago. They are fortunate to have you guiding them right now.
1.) Keynes as a reference? Ok, whatever....
2.) My most consistent wins are on 3-day to 3-week trades. My losses are almost always a result of holding on to some POS for far too long.
3.) Since when does the individual investor's wins or losses really move the market?
4.) Is anyone here really concerned with their individual success destroying wealth/profit for others? Even if it were possible, would anyone care?
Not a fan of interventionist policy; I much prefer von Mises and Hayek. You know, free market capitalism, libertarian limited government, etc.....
Keynesian economics has led directly to everything I and others on this site rail against. We need to cut the Keynesian nonsense OUT and quit with the "gov't must fix everything" approach. It's too expensive, inefficient, leads directly to erosion of freedom, and entrenches bad policies made by bad people entrenched in positions of high-octane power.
If you're a Socialist, Keynesianism is just fine. I do know a thing or 10, and one of them is that Keynes had a bad idea that got way too much attention during a time when the world decided socialism deserved a chance. It was bad then, and it's bad now.
I don't think getting a ball into your nuts proves of a lot of brains... :)
Funny little story:
2 chicken farmers both have their chickenfarm next to each other, but one is on the American side and the other one is on the Canadian side.
Suddenly, one day, a chicken lays a egg on the perfect border of their chicken farms!
The 2 farmers discuss each other to who the egg belongs.
SUDDENLY! THE CANADIAN HAS A IDEA!
What if we kick each other in the balls, and the one who doesn't scream or falls down gets the egg.
The American, all macho and stuff says: "OKAI BRO, GIVE IT YOUR BEST SHOT!"
And as we speak, the canadian steps back a few yards, runs, and kicks the American in the balls so hard, you actually hear his balls crack. But with tears in his eyes, the American doesn't budge...
After about 1 hour, the American is able to move again, and he says: "YOU STUPID CANADIAN, YOUR GOING TO GET IT! HARD!!"
But suddenly the Canandian says:
You know what?.... You can keep the egg, it's yours.... and walks away....
+100
Aren't you the same dude who told people to buy BBI a couple weeks ago?
Good advice for rational times. Current definition of long-term? Well, we are approaching a singularity in which, like a black hole, conditions are by definition unknowable. Long term is somewhere on the other side.
This is kind of what bothers me about the gold evangelists. Assuming they are holding a "store of wealth" assumes that the world will still accept this standard. Several millenia of recorded history seems to back the assumption that it will continue to be accepted as the standard, but man, I'm just not sure I trust back testing of any type at this point. Again, I do have a significant portion of my assets in physical gold, but I don't trust putting all my eggs in that basket. I feel like I'm having to heavily hedge everything, which is putting a real damper on my yield.
What is in your head, is your greatest wealth building asset.