Stock Picking…Art, or Science?!

Tags

art vs. science, growth vs. value, stock picking, stock selection, stock valuation, TGISVP, Warren Buffett

Gather some investors together, mix liberally with beer, garnish with some grub, lose track of time, and there’s a question which inevitably bubbles to the surface:

So, stock picking…is it bloody art, or is it science?!

If you’re a regular reader, you might recall my Why I Read (I, II & III) series & this more recent piece (Investing Haiku), and assume I’d argue stock picking is ultimately art. That’s understandable – and if you buy me enough drinks, I’m sure I’d be more than happy to expound on that very argument! [And yeah, maybe I can talk even more than I can write. 😉 But only v occasionally… 🙂 ] But in the hard light of day, I’d be far more reluctant – not because of the argument itself, but because of how it tends to be abused…

First, we have the experts who never really share/explain their actual investment process. Who knows if they’re afraid to share their secret sauce, if they’re looking to add some mystery & glamour (and a following), or if they’ve simply succumbed to false modesty? Intentional or not, they persuade investors their stock picking is ultimately art – so you can invest with them, slavishly copy their stock picks, or you can simply give up…because you can never hope to emulate them!

[I mean, look at Warren Buffett – here we are, 60 years into his career, still slavering over any attempt to reverse-engineer the keys to his investment process & success. Whilst lauding a schizophrenic media that likes to preach why you should invest like Buffett, and why you can’t invest like Buffett! Before he dies, Alice Schroeder needs to perform the ultimate public service – lock herself in a room with Buffett, and only come out when she’s fully documented the real nuts & bolts, facts & figures, and dollars & cents of his major stock picking successes!]

Baby Boomers…Yes, It’s All About Them!

Tags

alternative assets, American Dream, austerity, baby boomers, consumerism, emerging markets, entitlement spending, fall of communism, frontier markets, globalisation, Japan, Me Generation, Millennials, USA

In my last post, I acknowledged logic tends to fly out the window in a market correction, and fear & greed take over the driving. My advice was to take a deep breath, just accept the fact we don’t always know what’s coming next, and to positively transform the compulsion to do something anything to relieve your market-induced stress. Because a correction’s a wonderful upgrade opportunity, a chance to (re)deploy your weaker portfolio holdings & cash into higher quality growth companies – those compounders you hardly ever get to buy. Happily, things look a little rosier now (a special thanks, Japan!), and hopefully we’re now heading into a traditional year-end rally…

Of course, long-term performance is the best reminder to always remain invested in the market. Unfortunately, fear & greed can quickly undermine such compelling logic. Companies face a similar issue – it takes a great leader to keep a company set on its long-term growth trajectory, despite all the setbacks it will obviously encounter. The idea great leaders are great storytellers is interesting in this context – it suggests numbers & analysis aren’t enough, people often require a compelling narrative to motivate & help them stay the course. In terms of the markets, the more you can interpret & understand the narrative of the past, the better equipped you will be to see the long-term narrative arc & how it might continue playing out in the future.

So, let me share some of my market narrative. Remember, it’s a story – it doesn’t require proof, and it won’t necessarily remain set in stone. [Accordingly: I’m sure I’ll include plenty of links, but I’ll try resist the temptation to jam this post full of graphs & figures]. You may nod your head, agree, and ponder the implications for your own portfolio – or you’ll replace it with your own narrative…and that’s good too. I’m going to focus on the US here: i) because it’s the growth-engine of the world, and ii) where the US goes, much of the world tends to follow. I’ll also focus on the Baby Boomers – because they bloody deserve the blame…for just about everything! [I promise you’ll hear this more & more in the years to come]:

The Boomers grew up to a constant refrain: A never-ending list of the immense sacrifices and hardships their parents & grandparents endured during World War II & the Great Depression before it. Quite a dose of survivor guilt to be saddled with… Except when they started to come of age in the ’60s, they looked ’round and saw they were actually living in the richest & most powerful country on earth. Hardship and sacrifice seemed like rather quaint & irrelevant concepts, while sexual & political liberation beckoned as a far more enjoyable way to embrace young adulthood. Unfortunately, just when getting a job, getting married, and having kids began to enter the equation, everything turned to shit…