Are investors too arrogant?

In ancient times, it was thought that any successful mortal who bragged about it made the gods angry. So they would destroy that person for his hubris, or arrogance. If you were lucky, or rich, or beautiful, it was best to be quiet about it.

Good investment ideas can also seem to incite the gods’ wrath. Take the efficient market hypothesis: it started out as the simple notion that it is really hard to beat the market when you consider risk. Some reformatted this to imply that current asset prices reflect all material information. The first idea is humble. The second, while consistent with the first, is arrogant. And so the market gods of 2008 destroyed the proponents of the arrogant form of market efficiency.

I thought about this when I read of Warren Buffett’s $28 billion investment in Burlington Northern. He called it an “all-in” bet on the economy. But the Mr. Buffet is flirting with hubris. The last time he made a public, aggressive bet on the economy, the market fell 25% in the next few months. Now, he surely has the cash to weather a downturn, but his investments in GE, Goldman, and Wells Fargo are already pretty levered up.

I’m not predicting Mr. Buffet’s demise. But I’ve seen others who were riding high brought low by the roll of the dice. Remember the Maestro? If the market gods smile upon you, it’s best not to make them jealous in return.

Douglas R. Tengdin, CFA
Chief Investment Officer
Hit reply if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350 • •
By | 2017-07-17T12:35:21+00:00 November 4th, 2009|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

Leave A Comment