Time to think - Why do so many investors persist in believing that speed has to be a good thing?
The contrarian nature of value investing means a certain amount of bravery comes with the territory. Even so, here on The Value Perspective, we are not sure we would go as far as one of our competitors, who recently wrote an entertaining article suggesting he might best serve his clients by trading a couple of times a year and spending the rest of his time on the beach.
The problem with suggesting investors could benefit from your sustained absence from the office would, of course, be that your employer takes you literally. That said, we have a good deal of sympathy with our rival’s underlying point – that too much respect is given these days to things such as speed and action, at the expense of important investment qualities such as patience and thought.
All of which helped to remind us of an excellent Farnam Street blog from last year called In praise of slowness: Challenging the cult of speed. Among other things, it argued: “We’re so busy that our free time comes in 20-second bursts – just long enough for us to read the gist and assume we understand. If we are to synthesize learning and understanding, we need time to think.”
It went on: “We don’t want – or can’t find the time – to do the work that’s required to hold an opinion. It’s much easier simply to read the opinions of another and let them think for us. … Understanding comes from focusing, chewing and relentlessly ragging on a problem. It comes with false starts, dead ends and frustration. Thinking requires time and space. It’s slow. It means saying ‘I don’t know’.”
It was, though, the next sentiment – “We’re expected to have an opinion about everything and yet our time to think is near zero. We hold more opinions than ever but have less understanding” – that really resonated. That is because, here on The Value Perspective, we pride ourselves on focusing – and thus having opinions – purely on the fields of valuation and value-based investing.
So we do not have opinions on what GDP is going to be or what Amazon will do next with its delivery service or what drug may or may not be a success for AstraZeneca. We do, however, spend a great deal of time trying to understand the market price of an investment that is implied from today; the past track record of similar companies in achieving those expectations; and the associated risks.
Those are the only three areas on which we focus our attention – the only three questions on which we seek to have an opinion. And, frankly, we are constantly amazed that so many other people do the exact opposite and try and have an opinion on every aspect of investment. There is simply too much going on for anyone to have any hope of succeeding in that regard.
The Farnam Street blog also implies investors can forget there is any alternative to this vogue for ever more speed, arguing: “When everyone goes fast, most advantages brought by speed get lost. The only choice we see is that we have to go faster.” Certainly you can identify this in the ever-higher levels of portfolio turnover – first with hedge funds and now, even more so, automated high-frequency trading.
Amid this frantic activity, investors can lose sight of the fact not that everyone thinks like this – that some people are happy to be patient and thoughtful in the way they invest. What is more, this frantic activity can create significant opportunities for investors – including us here on The Value Perspective – who are prepared to take a genuinely long-term investment horizon of five years or more.
The Farnam Street blog adds: “‘Fast’ and ‘slow’ do more than just describe a rate of change. They are shorthand for ways of being, or philosophies of life. ‘Fast’ is busy, controlling, aggressive, hurried, analytical, stressed, superficial, impatient, active, quantity-over-quality. ‘Slow’ is the opposite: calm, careful, receptive, still, intuitive, unhurried, patient, reflective, quality-over-quantity.”
It then suggests ‘slow’ is about making “real and meaningful connections” but we would add it is also about making real and meaningful investments – understanding that when buying a share you are not buying some kind of lottery ticket but a part of a company. As such, you need to take time to think about the management team, the balance sheet, the factories, the logistics and everything else that a business involves.
In short, it is about looking to be, not a jack of all trades, but a master of one or two. When it comes to investment, ‘slow’ does not mean ‘bad’ or ‘worse than fast’. Indeed, as the Farnam Street blog concludes: “Evolution works on the principle of survival of the fittest, not the fastest. Remember who won the race between the tortoise and the hare.”
Fund Manager, Equity Value
I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials. In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
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