‘Making movies is controlled anarchy, chaos’ – Michael Cimino
It is a bit of a cliche to say that investment is both an art and a science…but in reality it actually is. We have talked before about the ‘voting machine’ and ‘weighing machine’ investor, the former influenced by shorter-term issues of fear and greed and the latter impacted by a more scientific appraisal of important numbers such as earnings and cash flow. Our approach – of course – with the Global Dynamic Opportunities Fund, is to look for opportunities where the former factors have enough of an impact to cause notable share price deviations from what you would expect if you just focused on the latter.
The most beautiful aspect of the investment markets is the unknown and this is never more apparent than during earnings season. The period between mid-October and mid-November will see over a thousand potentially eligible investments for the Global Dynamic Opportunities Fund produce some form of corporate update like a quarterly earnings report or a trading statement. I can say now there is little point in trying to look at even anything remotely like all of these names. There is little point – as Oscar Wilde once noted – of being someone who ‘knows the price of everything and the value of nothing’. I tend to stick with a time split that nods towards the Pareto Principle spending 80% of my analytical time on names that I know well, have appraised before and can weigh up – and write up – if there is an opportunity relatively quickly. The remaining 20% of my analytical time can be spent on those names that catch the eye because of macroeconomic, share price move or just new newsflow at-the-margin rationales. This is the anarchic element – and is what keeps any analyst ploughing through the quarterly earnings deluge – alive and analytically sharp.
Sometimes I get asked what makes a good investment analyst or fund manager. Beyond the usual comments about working hard, a thick slug of common sense and a good understanding of economics, investor psychology, portfolio management theory and accounting, for me the key attribute is being (and remaining) inquisitive. Investor instincts should be encouraged and not surpressed in some kind of overly formal and deeply scientific investment selection methodology which is all science and no art – not least because (as noted above) you risk missing out on many ‘voting machine’ influenced opportunities this way.
I remember back in my formative years meeting an analyst from a major investment bank who had spent six months of his life putting together a doorstopper of a report (150 pages!) on a major European conglomerate company. And the conclusion of all this effort and detail? A ‘hold’ recommendation. It struck me at the time that this was a grand waste of time and today’s world of shifting macroeconomic influences and (for many global stock markets) after a multi-year bull market also does not suit such an approach of knowing more about less and less. The world of 2018 into 2019 is to let a thousand analytical flowers bloom and to compare and contrast as many matters as possible. In short, it is better to know more and more…about more and more. And this should include a bit of investment appraisal anarchy…because you never know what you might turn up until you have a quick look.