Translated by Andrew Vanburen from 諸法意為先，意主意造作
COUNTLESS MARKET analysis has been written on the “sure bets” out there, so much so that a secular sect could be invented, with "top tips" as scripture and wealth the ultimate reward.
And the only requirement to be part of this “religion” is blind belief in the wisdom of the “hot stocks.”
But sects like this need skeptics to ask the question: “Are you sure the intrinsic and current values are that far apart?”
Separating fact from feeling
Remembering the blind spot we all have when emotion is whipped up, and taking a step back from the fray to get a more objective gander, is what separates the sympathetic investor from the scientific.
Blindly following feeling and emotion, as applied to investing in the stock market, inevitably precludes the possibility of an honest, fair and sober assessment of a particular counter’s fair value.
Seeing is believing, and there is perhaps a reason why the eyes are closer to the brain than to the heart.
Those who let their heart overly influence what their eyes are seeing (e.g. a decidedly unphotogenic toddler that “only a mother could love”) nine times out of 10 make decisions that bypass logic and reality.
This leads to clumsy rationalization and flawed decision-making come crunch time... when the broker is waiting impatiently on the phone to take your order, and all you can see before your eyes are the hyped-up “hot stocks.”
If you like to make things interesting at casinos now and then, next time you are in Macau or Singapore, take a look around the card table in the “high stakes” room.
There you will likely see “well-manicured” hands NOT tapping their fingertips upon the green felt, and despite the heat, you won’t see these high rollers dabbing at sweaty foreheads between each wager. Why? because they are seeing things with their heads, not their hearts, and are not letting their emotions get the best of their performance.
There’s a reason they call these stoic visages “poker faces” and more of this demeanor in the markets would make for a lot more winning investors.
In the trading room and even in the boardroom, it is perhaps best to have an open mind and open eyes -- but a “blind” heart. For this is what separates the “hobby” investors from the “hard core”... the retail from the institutional, and often, the rich from the not-so-rich.
But outside of these two venues, we are reminded of the social and relationship-corroding dangers of taking your “blind” or “closed heart” home with you for the weekend.
I remember something from the popular Hong Kong production “Never too Late” (愛得太遲).
Partial lyrics from some of the show’s soundtrack really stood out for me: “I see the old man night and day with more crow’s feet than care around his eyes. I hear him cry ‘I loved too late’, and say he can’t sleep for all the chances lost and the heavy cost of love lost’.”
If this isn’t a warning to not lock up your heart and throw away the key, I don’t know what is.
But sentimental fools and their investments are soon parted.
So best save the emotion for the homefront or movie theater, because sentimentality and “intuitive valuation” -- along with 10 Hong Kong dollars -- will get you a cup of coffee.
7 Habits of Highly Effective People
In Steven Covey’s must-read book for MBA students and successful modern day executives: “The 7 Habits of Highly Effective People,” he argues that people simply assume that the way we see things is the way they really are or the way they should be.
Many people begin their adventures in investing with a flawed notion from the outset.
They search far and wide for a “market whiz” who not only apparently enjoys the power of omniscience, but also has the best interests of the advised in his or her heart, and the advised alone.
But simple logic and human nature reveals the absurdity of this naïve outlook.
Firstly, the more successful an analyst, advice-giving broker or wealth management “guru” is, the more adherents will be ferried into his flock.
The more adherents there are, the less “targeted” the consulting can be to an investor’s individual needs.
There is no such thing as an omniscient consultant or fund manager.
Just ask the duped investors who thought the same of Bernie Madoff last year.
They didn’t ask why Mr. Madoff (now rightfully rotting away in prison) could guarantee CAGRs in ROEs in excess of 20%, while the Street was stuck in single digits.
If they had bothered to ask, or used more technical analysis and less blind faith, they wouldn’t have contributed to producing the biggest “white collar” criminal in the history of mankind.
Therefore, the longer I spend in the investment world, the more I discover that the heart is most important to knowing the true hearts and minds of others (i.e. Mr. Madoff), but the head is key to winnowing out the hype from the hard facts, and not rushing to quaff the Kool-Aid every time a “hot stock” is hyped.
See also:
INVESTORS ARE Only As Savvy As Their Information
HOW BUYING STOCKS Is Like Choosing Kitchenware
PICKING STOCKS & Ponies: Charlie Munger’s Tao Of Value Investing
