A lot of investors say they want to find great unique ideas, off-the-radar ways to make a lot of money. But it’s a lot more difficult than it sounds. So, few people do what they have to do to find those great ideas. And as a result, they don’t make a lot of money.
What makes it more difficult is that we – the human race, that is – feel most comfortable doing what everyone else is doing (this is called the bandwagon effect).
We tend to think if the majority is doing something, then it must be the right thing to do. Otherwise, everyone wouldn’t be doing it – right? We feel there’s safety in numbers.
This Tiger Cub Giant Is Betting On Banks And Tech Stocks In The Recovery
The first two months of the third quarter were the best months for D1 Capital Partners' public portfolio since inception, that's according to a copy of the firm's August update, which ValueWalk has been able to review. Q2 2020 hedge fund letters, conferences and more According to the update, D1's public portfolio returned 20.1% gross Read More
Even investors who are resolutely determined to get off the bandwagon often just wind up on another one. Sometimes being contrarian actually becomes the consensus. And the great off-the-radar idea is actually squarely at the centre of it.
Here are a few thoughts about finding unique ideas that really no one – not anyone – else is looking at… yet.
1. Look for ideas in other places
“In other places?” you might say. “Other than where?” To which I respond: Other than where you’re looking now.
If you’re trawling the Financial Times or Bloomberg or Forbes or your favourite financial blog for investment ideas, you’re going to come up with the same ideas that everyone else has. You wouldn’t fish in the carp pond and expect to catch a tuna. So the chances are slim that you’re going to come up with something new and different by looking where everyone else is looking.
Instead… talk to someone who is involved in a completely different field. Ask your kids where they’re shopping and what they’re watching on TV.
Put down the Wall Street Journal, and pick up a copy of Science, The Atlantic, or Foreign Policy magazine. Try sources of information that have nothing directly to do with finance. And if you come across something interesting, try and create a thread between the subject matter and how you can invest in it.
Hop on a plane and go someplace new. Investing doesn’t have to be overly complicated. But new ideas need oxygen. And you’re not going to find that in the Wall Street Journal.
(I got the idea for this article from a piece by business consultancy McKinsey about originality. I’m not particularly interested in McKinsey (business consulting is full of people who are like financial advisors and personal bankers – the kind of folks who make a living by complicating things). But I wouldn’t have come up with this idea if I wasn’t wandering down a path that was different for me.)
2. Have lots of ideas
Eat ideas for breakfast. Have them for lunch. Drink them at teatime and fry them up for supper. Throw them at the wall and see what sticks. The more, the merrier.
Why? Because most ideas are bad. The best that most of us can do is come up with ideas that are old and tired, or misguided, or based on incorrect assumptions, or otherwise just plain wrong. Almost every idea I come up with is a bad one.
But a bad idea is better than no idea at all. Because out of the pile of bad ideas, a few good ones will emerge. And any idea is better than no idea.
The trick is to understand that they’re wrong before you take them to the execution stage – before you buy something based on your lousy idea. But the first step is to have an idea – any idea – first.
And also… try reading this book: A Technique for Producing Ideas. It’s less than a hundred pages long. Written in 1965, it has become a classic for people working in creative fields. But it works just as well for investment ideas.
In investing, action is often viewed as “good”. If you’re doing something – anything – it’s better than nothing. Fund managers are often frowned upon for not being close to fully invested… “I’m paying you to invest, not take a fee from holding cash!” If you’re not doing something with your money, you’re wasting time – and, as we know, time is money.
Procrastination – putting off until tomorrow what you could do today – is often painted in terms of regret. It’s the ten-bagger that got away… the real estate deal that would have made you a millionaire many times over if only… the friend of your uncle’s friend who was an early investor in something that went huge – but you didn’t bite.
What you don’t hear about – what doesn’t make for humblebragging fodder – is the amazing stock that they said you just had to buy, and the stock went… nowhere. Or the stock that hit your stop loss and died a humble tax write-off death. You don’t hear the fisherman (he of the “one that got away”) talk about all those times that he tossed his line into the water and came up with… nothing.
Sometimes, sitting still – and procrastinating – is better. There are times – like when you’re coming off a big market victory and are flush with confidence – when doing nothing in the market is the better option. Just because you have cash doesn’t mean you should use it. After all, there’s no better hedge than cash.
Procrastination by itself, of course, is no guarantee of good investment ideas. But often it’s when you’re sitting still, or doing something else, that the best ideas come into your head. And by procrastinating – not indefinitely, but enough – you’ll be more likely to come up with something.
4. Ask questions without fear of looking stupid
One of the best things about looking for ideas in new places – and speaking with people who are experts at something you know nothing about – is that you can ask the most basic (“stupid” to some people) questions without shame.
If you’re interested in what a person has to say, they’ll usually be more than happy to give you basic answers to your basic questions.
Stupid questions can do a few things:
- You might learn something new.
- The person you’re talking to might learn something new.
- You might see something that you’re familiar with from a different and new angle.
So… I’m off to come up with new ideas. They’ll mostly be bad ones. But one or two good ones might find their way here.