Found another article, “The World’s Smartest Man Syndrome,” by Bennett Goodspeed while I was searching the Internet. Despite it’s original publication date of 1978, it encompasses many of the principles we talk about that are relevant today.
A few of Goodspeed’s important words:
“Just as forecasters have their problems with change, so do analysts. This is because initially change is numberless – the new numbers that measure the change will not be available for some time after the change has already occurred. Therefore, to deal with change, one has to rely on skills of the non-analytic or intuitive mode. Thus, a portfolio manager needs to identify change early before it can be empirically measured by everyone (before they can see the iceberg). In other words, to be effective, he must operate in the inefficient side of the market by having the courage to make decisions with only partial information.He must accept the responsibility for dealing with changing situations.”
Without going into a lot of detail, I think the main points of the article are:
- Pick a style of analysis that fits your personality and brain dominance (analytical vs. intuitive. Not all analysts make good protfolio managers and vice versa.
- Don’t blindly follow the investment conclusions of analysts or others. Do your own work.
- Intuition is an important analytical input. “It is important for you to transcend “Heard on the Street” to your own column better titled “Seen in the World.””. See Key Principle #6.
- Avoid too much information, it can cause, as we call it “paralysis of analysis”. See Key Principle #9.
- Analysts tend to talk to the same sources and look at the same data, therefore their conclusions will most likely be similar (just look at typical spread of earnings estimates). Don’t use too many contacts that others have.
- “Pay more attention to what is unique than what is normal. Conversely, pay less attention to historic correlations, as a strong belief in the “conventional wisdom” can be a block to good perception.”
- Like Charlie Munger says, when looking at a problem or company “always invert”. It helps you see what other do not. See Key Principle #5.
- Reading industry or trade publications are a great way to augment reading numerous Wall Street reports on a company. The example given is reading the Oil and Gas Journal will tell you more about the energy industry than reading 20 Exxon Wall Street reports.
- “View investing not as a science, but an art form. Constantly keep in mind that it is better to be generally correct than precisely wrong.”
- Be skeptical of management.