It’s interesting how our world works. On the one hand, we admire success, yet on the other we often dismiss it. For example, many thought Jeff Bezos’s Amazon would be just another book retailer. Now, he and his company are considered revolutionary and an enormous success. However, as Einstein once said, “It’s all relative!” And Aristotle was known to start his arguments by stating “Let’s define the definitions!”
Successful investing is about making good judgments and then acting on those judgments. We in this industry constantly learn from books, others' stories, observations, and experience. Our brains are wired to place our own experience at the top of the "how we learn" pyramid.
I miss my book Dictionary of Theories, which rests on a shelf at home. Years ago it sat, loved, on my bedside table. I enjoyed reading it, largely because it helped stretch my brain with quick summaries of theories from all sorts of disciplines, including those far outside the realms of economics and finance.
Over my career, I’ve spoken and written quite a bit on the topics of complexity, connectedness, and change. Respect for these “three C’s” is something that our team at FIM Group regularly discusses as we analyze investments and manage portfolios. I recently circulated a report published by the World Economic Forum (WEF) in Davos, Switzerland, that includes Figure 1, showing major trends and five categories of risks (economic, environmental, societal, geopolitical, and technological) facing the global economy today.
I remember when I was about 16 years old, my dad, who was an elementary school principal, told me that one of his teachers had remarked that a particular student was “not worth the effort.” And then he said this to me: “Paul, kids are stupid. If you tell them they are smart, they will believe you.”
Happy New Year! I often get philosophical and reflective at the end of the year. I think about the past and reflect on the beautiful people I have known and those who are still in my life. I often miss and am saddened by memories of friends and family members who have lost their lives at relatively young ages. I also feel grateful to be alive in these exciting times. Each day seems to evolve and feel like a sort of “stay tuned for what’s next” drama.
FIM Group has long taken pride in our independent views. While we don’t necessarily set out to be contrarian, the nature of our value-focused investing often leaves us standing apart from the herd. This month we’d like to share some perspective about why we aim to avoid the herding instinct and how we go about keeping our thinking sharp and unbiased.
Herbert Stein, Chairman of the Council of Economic Advisers under the Nixon and Ford administrations, came up with a principle many years ago that has guided me over several decades of professional investing. Stein’s Law, as it is now known, is simply this: “If something cannot go on forever, it will stop.” In other words, unsustainable trends are unsustainable.
With many financial markets off to a volatile start in 2016, our team has been fielding an understandable increase in calls from concerned clients. We’ve aggregated some of the most frequent questions and our responses for this month’s investment strategy update.