The only way to beat the markets long-term in investing is to be an iconoclast. Ray Bradbury was one of our finest, and most human, sci-fi writers. He was a great writer first, and a science fiction writer second. Much like Philip K Dick, Robert Heinlein, and Isaac Asimov, his visions of the future influenced thinkers for generations to come.
Ray Bradbury, Prolific Science Fiction Writer, Dies at 91 – Laura Tillman
Futurism in general is a fascinating topic for investors to grapple with. It’s fun and awe-inspiring to think distantly into the future about what could be. But note: most every long-range forecast ends up wrong, and markets only discount a couple years into the future at the very most. Futurism is big danger for investing sanity. So have fun with it, but don’t invest today on vague notions decades in the fore. Here are a few recent favorite futuristic tomes:
- Physics of the Future: How Science Will Shape Human Destiny and Our Daily Lives by the Year 2100 by Michio Kaku
- Abundance: The Future Is Better Than You Think by Peter H. Diamandis and Steven Kotler
- The Next 100 Years: A Forecast for the 21st Century by George Friedman
- The Singularity Is Near: When Humans Transcend Biology by Ray Kurzweil
As I say in most all my writings about forecasting and economics: Market behavior is much more like a CEAS (Complex Emergent Adaptive System) than it is a neat and tidy math-based equilibrium model. Here’s a fun piece:
Sometimes (actually fairly often) it’s good to revisit the investment classics that stand the test of time. From Philip Fisher’s Common Stocks and Uncommon Profits, great questions to ask about a company before considering a stock investment:
Point 1: Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
Point 2: Does the management have a determination to continue to develop products or processes that will still further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
Point 3: How effective are the company’s research and development efforts in relation to its size?
Point 4: Does the company have an above-average sales organization?
Point 5: Does the company have a worthwhile profit margin?
Point 6: What is the company doing to maintain or improve profit margins?
Point 7: Does the company have outstanding labor and personnel relations?
Point 8: Does the company have outstanding executive relations?
Point 9: Does the company have depth to its management?
Point 10: How good are the company’s cost analysis and accounting controls?
Point 11: Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in its relation to its competition?
Point 12: Does the company have a short-range or long-range outlook in regard to profits?
Point 13: In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares than outstanding will largely cancel the existing stockholders’ benefit from this anticipated growth?
Point 14: Does the management talk freely to investors about its affairs when things are going well but “clam up” when troubles and disappointments occur?
Point 15: Does the company have a management of unquestionable integrity?
If you haven’t heard of Intrade, read this article: It’s not always right, but over the last decade or so, Intrade has been a fascinating case study in the power of market wisdom. For those market watchers also keeping an eye on political outcomes, bookmark it.
Many of the most potent economic ideas, particularly the ones that last, have morphed into a kind of disposition, a way of seeing the world, almost a style of economic consciousness. Keynesianism is a way of seeing the world, as is the Austrian way, the Adam Smith way, Malthus, Marx, the Friedman Monetarist way, and so on. They’re not fads; they constellate in and out of favor, and in and out of the public discourse and consciousness, over time. It’s almost as if economic ideas have morphed to the level of archetype—natural dispositions of the economic psyche. Understanding economic ideas in this way can help investors become less ideological and set on one set of ideas, but rather realize they are all part of a continuum of thinking on the subject.
Eddie Van Halen recently turned 57. This is not important for investors to know. But in a way, it sort of is.
Eddie was/is a heretic—he was never taught music, he never went to a formal school. Instead, he loved it so much he taught himself. There are stories of him sitting on the edge of his bed in high school, when everyone else was out, playing the guitar the whole night through, for many nights in a row. He never followed anyone else’s path (though he did learn a lot of Clapton songs), and as a result his take on the instrument is so singular and unique, you can tell it’s him in just a few notes, and no one can truly mimic him to this day.
This is what investing is all about. If you follow some program, or some other set way of thinking about the world—all you’re doing is mimicking, and that almost never works in investments because known and accepted programs get priced in. You can’t be Warren Buffett or Ken Fisher, only they can be. You have to forge your own way, your own style of thinking. You have to be unique.
From Wikipedia: The All Music Guide has described Eddie Van Halen as “Second to only Jimi Hendrix…undoubtedly one of the most influential, original, and talented rock guitarists of the 20th century.” He is ranked 8th in Rolling Stone’s 2011 list of the Top 100 guitarists.
I wanted to be Eddie when I was a kid. I still do. I’ve logged so many thousands of hours trying to play like him, and spent so much money on his gear…at some point around age 22 I realized I would never be a great guitarist because I was trying to be somebody else. I took that lesson into my career at Fisher Investments, and I spend all my focused thought trying to forge my own way, and learn from it when I’m wrong.
Eddie doesn’t do many interviews or speak very much, but I remember him once saying, “You only get twelve notes, it’s what you do with them that counts.” In investing, we all pretty much have the same information now, all the same newspapers and so on, for the most part. It’s what you do with the information that counts—it’s the unique insight. No computer or algorithm or statistic can do it for you.
I couldn’t be more excited for Eddie, now 57 and on the eve of the new Van Halen album and tour. The VH sound has always been both distinct and consistent, even when singers changed. And yet Ed tends to reinvent himself every time—there will be something new he pioneers in this album, some sound we’ve never heard before. If only we could all do that in investing: consistent innovation, driving the whole system forward along with us.
Andy Kessler’s Op-Ed in Tuesday’s WSJ is a must-read tied to the trends in overall standards of living and availability of products. He touches on income disparity—I’m not going there but you can make your own conclusions. Kessler’s perspective is most useful for putting into context capitalism and the boons it brings to wide swaths of the population over time. My favorite part:
“Just about every product or service that makes our lives better requires a mass market or it’s not economic to bother offering. Those who invent and produce for the mass market get rich. And the more these innovators better the rest of our lives, the richer they get but the less they can differentiate themselves from the masses whose wants they serve. It’s the Pages and Bransons and Zuckerbergs who have made the unequal equal: So, sure, income equality may widen, but consumption equality will become more the norm.” The Rise of Consumption Equality – Andy Kessler
And, check out the website to my class at Cal Berkeley here:
There are things to quibble with, but I’m generally an Emanuel Derman fan. He’s one of the original physicists who became a “quant” for Goldman Sachs, and now has turned commentator about the virtues and perils of modeling. Specifically, he’s very good at explaining the role of math in forecasting capital markets.
Derman’s new book is pithy and well wrought—an easy one to knock out during the holidays.
I find folks in the finance field tend to treat data as “facts” sans the caveat that numbers are a kind of semiotics—representations; a step removed from reality and not reality as such. It’s one of the reasons, among many, I think it’s worth occasionally taking a look at current thinking in physics—which really starkly reveals what mathematics can and can’t do in terms of explaining the world. Physics is a place where imagination and creative thinking intersect with the rigid logic of math—it’s a style of thought much better suited to how to think about capital markets as opposed to rote statistics and engineering.
Said differently, how many times this year (or any year, really) have we seen some bulge bracket firm tell us how the world is going to work based on some ironclad multifactor regression model…only to see the world simply do something else? There’s a chasm of difference between math’s ability to quantify and categorize the world in order to better understand it, and the ability for math to say what happens next. One of the great next debates in financial theory will be about the prevalent illusion of validity tied to faith in numbers.