value investing

By: greenbackd

Wes sent through this outstanding more-than-30-year-old speech, Trying Too Hard (.pdf), which foreshadows many of the ideas we discuss in Quantitative Value, so much so that I feel that I should point out that neither Wes nor I had read it before we wrote the book. The speaker, Dean Williams, named the speech for this story:

I had just completed what I thought was some fancy footwork involving buying and selling a long list of stocks. The oldest member of Morgan’s trust committee looked down the list and said, “Do you think you might be trying too hard?” A the time I thought, “Who ever heard of trying too hard?” Well, over the years I’ve changed my mind about that. Tonight I’m going to ask you to entertain some ideas shoe theme is this: We probably are trying too hard at what we do. More than that, no matter how hard we try, we may not be as important to the results as we’d like to think we are.

The speech covers the following themes, among others:

  • Prediction

…[M]ost of us spend a lot of out time doing something that human beings just don’t do very well. Predicting things.

  • Forecasting, information, and accuracy

Confidence in a forecast rises with the amount of information that goes into it. But the accuracy of the forecast stays the same. 

  • Expertise and forecasting

And when it comes to forecasting – as opposed to doing something – a lot of expertise is no better than a little expertise. And may be even worse.

  • The importance of mean reversion

If there is a reliable and helpful principle at works in our markets, my choice would be the ones the statisticians call “regression to the mean”. The tendency toward average profitability is a fundamental, if not the fundamental principle of competitive markets.

It can be a powerful investment tool. It can, almost by itself, select cheap portfolios and avoid expensive ones.

  • Simplicity

Simple approaches. Albert Einstein said that “… most of the fundamental ideas of science are essentially simple and may, as a rule, be expressed in a language comprehensible to everyone“.

  • Consistency

Look at the best performing funds for the past ten years or more. Templeton, Twentieth Century Growth, Oppenheimer Special, and others. What did they have in common?

It was that whatever their investment plans were, they had the discipline and good sense to carry them out consistently.

  • And finally, value

Spend your time measuring value instead of generating information. Don’t forecast. Buy what’s cheap today.

Read Trying Too Hard (.pdf). You won’t regret it.

h/t/ The Turnkey Analyst