“The majority is never right.” – Henrik Ibsen, An Enemy of the People
Photo: Francis Hannaway. Source: Wikipedia
Have you ever been to a fishing tournament? At the starting time, dozens of boats roar off to their favorite fishing holes, which quickly become crowded. There are usually two winners: the one that pulls in the most weight and the one that catches the largest individual fish. In the US, there are over 30,000 fishing derbies every year.
Watching a tournament can be fun. You learn where the best holes are, what the pros use for bait, and other tips. But it’s also instructive to see who wins. The biggest fish usually doesn’t come from the mass of boats gathered in the most popular spots. They come from folks who get away from everyone else, who may try something unconventional.
Investing is similar. Investing with the crowd rarely delivers exceptional performance. Put another way, conventional thinking yields conventional returns. There’s a universe of other people out there who are all evaluating the same set of investment opportunities. Following what most people are doing will give results similar to most people. But it’s not enough just to be different. Just because no one else is playing tennis on the freeway doesn’t mean it’s a good idea! Put another way, there’s no upside in taking a contrary view to the solution of 2 + 2.
You can’t just to bet against the crowd. Successful investors need to know why the mob is mistaken. Only positions taken with the confidence of a strong decision-making process can be held—and even increased—when they look like mistakes rather than winners, and losses accrue rather than gains. Markets—and companies—can remain over- or underpriced for years. Eventually, good ideas pan out. But you have to be able to hang on until they do.
Leadership is lonely. But it’s absolutely necessary if you want to achieve superior results. Jean Paul Sartre famously writes that “Hell is other people.” For investors—and anglers—sometimes you just have to ignore other people.
Douglas R. Tengdin, CFA
Chief Investment Officer