Special.
Every investor is unique. Similarly, every investment opportunity is unique. Despite our desires to see otherwise, each situation must be measured on a paradigm of possibilities rather than being pigeon-holed into a structured definition. The irony of these “uniqueness-es” is that as investors we tend to define ourselves, and the investments we make, with standardized definitions which inhibit our potential for achieving success.
“I’m risk-averse.”
“I’m yield-oriented.”
“I’m a risk-taker.”
These are all colloquialisms that button us up neatly in our mind, or that of our portfolio manager, so much so that we fail to acknowledge any “margins” or things which deviate from our comfort zone.
Wait a minute. Don’t I constantly chastise those who fail to abide strictly to a discipline, any professed analytical science, about investing? Yes, I am, and yes I do. But what I try also to convey is a moral imperative about acknowledging what’s right in our universe or what must absolutely be discarded in order to make probabilities work in our favor. Before we can control our process of investing we must cultivate a climate of morality in which it exists. For example, banks that engage in marginal behaviors in order to generate a profit must be defined as unscrupulous profit-mongers, or be labeled as inconsistent with the norms that make “profitability” an end-result. What if a percentage of corporate profit was allocated to eradicating hunger? Charity only goes so far.
Similarly, maximizing portfolio gains at any cost is not how one would characterize a portfolio strategy, or one’s personal style, unless they, too, had no perfunctory moral compass. Failure is acceptable if the alternative is to succeed immorally.
Focus.
Portfolio appreciation is an amalgam of techniques, processes, disciplines and behaviors which meld into an analysis of available, and sometimes intuitive, data. It is the intuitive part that sometimes helps or hinders us. If we find our intuition to be corrosive to our objectives we can sometimes fall back upon someone else’s opinion (an analyst, for example) or revert to a “black box” discipline that removes all thought from the process. But, of course, that’s no fun. We need to have emotion and intuition as part of our overall complex. The issue, then, is how much intuition versus how much data?
One of the benefits of quantitative statistics, my science, is that the world is constantly feeding us information, some of which is redundant and repeatable, some of which is random. As in life, the information we get about corporations (earnings, P/E, valuations) can either be anticipated and usual, or highly unanticipated and unusual. We, as analysts, use our science to quantify the redundancies and to plan for the exogenous noise. The degree to which we can balance and modulate the risks, and to diversify the probabilities, is what makes one manager more “competitive” than the other, even though the common data set is the same for all of us.
The next profound impact upon performance, then, is the moral oversight one places upon a fast-paced, never-ending stream of information. What leaves portfolios vulnerable to huge draw-downs is the reduction of choices we voluntarily impose upon our own process.
“Greed” and the “herd mentality” can either be the bane of one’s portfolio discipline, or forever banished from our mindset of understanding how best to use intuition, science, and random noise to make us happier and wealthier.
Scotty C. George
(212) 624-1147
The information contained herein has been obtained from sources believed to be reliable but is not necessarily complete and it accuracy cannot be guaranteed. It is intended for private informational purposes only. Any opinions expressed are subject to change without notice. Du Pasquier Asset Management and its affiliated companies and/or individuals may from time to time own or have positions in the securities or contrary to the recommendation discussed herein.
© du Pasquier Asset Management
