Friday, April 18, 2014 9:07:41 AM
All the best,
Silversmith
It Isn’t Easy Being Different
In the 2006 memo, I borrowed two quotes from Pioneering Portfolio Management by {name removed} of Yale. They’re my absolute favorites on the subject of institutional behavior. Here’s the first:
Establishing and maintaining an unconventional investment profile requires acceptance of uncomfortably idiosyncratic portfolios, which frequently appear downright imprudent in the eyes of conventional wisdom.
“Uncomfortably idiosyncratic” is a terrific phrase. There’s a great deal of wisdom in those two words. What’s idiosyncratic is rarely comfortable. . . and in order for something to be comfortable, it usually has to be conventional. The road to above average performance runs through unconventional, uncomfortable investing.
Here’s how I put it in 2006:
Non-consensus ideas have to be lonely. By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron. Thus such ideas are uncomfortable; non-conformists don’t enjoy the warmth that comes with being at the center of the herd. Further, unconventional ideas often appear imprudent. The popular definition of “prudent” – especially in the investment world – is often twisted into “what everyone does.”
Most great investments begin in discomfort. The things most people feel good about – investments where the underlying premise is widely accepted, the recent performance has been positive and the outlook is rosy – are unlikely to be available at bargain prices. Rather, bargains are usually found among things that are controversial, that people are pessimistic about, and that have been performing badly of late.
But it isn’t easy to do things that entail discomfort.
Dare to Be Wrong.
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