In my former job, I was part of an executive team in a nascent, but fast growing industry. You could consider it the health care equivalent of the dot com era. Each one of us was unskilled but we were fully aware of it. In fact, the entire industry was unskilled--some aware and some unaware. I will tell you that being in such a position produces the highest degree of stress imaginable, because lots of money was on the line and everyone (industry-wide) was flying by the seat of their pants with their hair on fire!
We would actively challenge ourselves by vetting the following about our industry:
- Unknown and unknowable (these are the things that peg the sphinctometer)
- Knowable, but currently unknown (because of lack of studies/outcomes)
- Known
I would suggest that vetting these three items about any risk undertaking is important. It wasn't until reading through the comments section of the last post that I was reminded of these things. And, in being reminded of them, I thought that they have great applicability for investing.
Unfortunately, a multiplicity of venues and points of view exists. For each of these (and there may be more than someone could add) you have to be very specific regarding the 'what' (sales, costs, regulatory, etch) and the 'who' --as in whose point of view (yours, management's, the market's, regulator's, etc). Something that is unknown and unknowable may merely be unknown and unknowable TO YOU but others may know it. But you have to adopt an investor point of view. Bill Cara is fond of saying--"if you are not in the room, you are not in the deal".
6 comments:
If you "KNEW" that within the finance industry, all of the prognosticators were unskilled and unaware, or unskilled and duplicitous, would that not change how you do a lot of investing.
I think there is a good reason why finance often makes its money by skimming a portion from all the deals: good and bad.
"If you "KNEW" that within the finance industry, all of the prognosticators were unskilled and unaware, or unskilled and duplicitous, would that not change how you do a lot of investing." No, it wouldn't change how I invest, because I've learned that prognosticators are quite fallible! And it is quite a good lesson to learn early--it is an expensive lesson to learn often.
However, having said that, I would not say that all prognosticators are all unskilled and unaware. I'm not quite sure if you are asking a rhetorical question or making a statement.
There are many prognosticators that are quite skilled and quite aware but the certainty of their view and the timing of expectations cannot be relied upon at the exclusion of all other things. And I suppose that is the essence of accepting balanced risk in the market--sacrificing return for safety--and that is always an individual choice that one must consciously make. I'm not sure that many CONSCIOUSLY make this choice. (sounds like another research paper to look for!)
"I think there is a good reason why finance often makes its money by skimming a portion from all the deals: good and bad."
Mindful of this, Russell, I've become a great deal more interested in NDAQ, NYX, and ICE. Mind you, I haven't bought any of them, but I'm looking closely....
It was not rhetorical. Although there are certain real world patterns that tend to play themselves out, the prognostications of your industry people are as useful as goat entrails. If you like goat meat, less so.
The technical trends crowd is probably the worst culprits.
There are a handful of styles out there that go against the trend of current investing models used by the Wall Street. Typically they take a longer time frame then current Wall Street commercial interests are able to. The best known is the "value investing" approach, but there are a few others.
Nona- within the Greek Pantheon Nyx is the primordial goddess of the night. So we might call your investment outlook: the cold dark goddess of high tech.
I tend to view the exchanges as being such highly politicized beasts that they are even harder to predict then Fannie and Freddie. Too much interest in shelling out money to the politicos and the insiders, with very little in the way of market restraints. But I don't follow them closely, so I am ready to stand corrected.
"the prognostications of your industry people are as useful as goat entrails."
Russell, not to sound too contrarian, but I don't believe that statement to be true. It appears to me that you are throwing a lasso around the entire industry.
Much of the research that I read is precisely the type of information and process that I've employed in analyzing companies to buy (in a corporate environment not in an investing environment). OF course, I read it and I understand that the precision that they are striving for is unattainable--so I have a box of kosher salt beside me for one needs more than just a grain of salt to read these things. NEvertheless, there is stuff in those reports that is terrific that you don't get other places, even the filings.
There are limitations because one has to make assumptions. And that is endemic to business. Everything is predicated on assumptions and probabilities, and you don't always get it right. But that doesn't mean that the entire report is worthless.
What this study demonstrated was that one's assumptions may have a bit more optimism depending on one's bent--investment bank sponsor or independent research. No surprise there, but it is great to see it in the literature. This optimism is also true in corporate life, which is why organizations need to have a rigorous vetting process for project evaluations. Those with a vested interest tend to have assumptions with a good bit more sunshine radiating from them than is generally warranted. I always found the dark corners, though and made them squirm.
There are various investment styles with there ardent adherents that have been successful. And there are +/-'s for each style. The most important thing is matching style with one's time frames, abilities and risk tolerances.
Technical Analysts--yes, Martin Pring had a spectacular failure last year, but I still admire his work. For my own style, I join technical and fundamental analysis. It is in the joining of these two styles that I have had my best successes, and it fits with my personal style.
"It appears to me that you are throwing a lasso around the entire industry".
Yes I am: based on best evidence.
If the assumptions have no real basis in future reality, then your pricing is just a gamble. Gambling is OK, but call it what it is.
In construction they have budgets and schedules. The only study I am aware of shows that most of the time construction is over budget and late. The failure to identify even the simplest of potential "outliers" tends to make the budget/schedule a sham. However, as complex as even a simple construction project may be, the actual business workings of a mid-size company will generally have many more outside factors. The lack of "set in stone" contracts just makes the results harder to track.
Post a Comment