Interviewer Damien Hoffman asked Jim what countries he watches to make sure the Greece situation doesn't get out of control. Jim gave an answer that was broader than the intent of the question in saying...
I’m trying to watch the whole world. We cannot be very successful investors if we don’t know what’s going on everywhere. All of a sudden you’ll something like Iceland will show up and you’ll get killed because you didn’t know that Iceland even existed.
He went on to note that often events start in places no one pays attention to. If you have been reading this site for a while you know that I try to 'watch the whole world' and write about that some. In the past I've mentioned some countries that are off the beaten path and obviously I devote a fair bit of time on trying to learn about certain narrow market segments where I think value can be added either through performance or dampening volatility.
The potential portfolio benefit should be obvious. As one example the troubles in Latvia caught my eye early on (read about it either in the FT or in Jyske Bank's research) and it became clear that Swedish banks were very heavily exposed to Latvia through loans made into the country. Part of Latvia's trouble came from unrealistically trying to maintain a peg to the euro. But now it is possible that they pulled off an internal devaluation (A Fistful of Euros has had a post or two about this) but that remains to be seen.
Every holding in a portfolio is risks but often those risks are not obvious without casting a wider net in what you study. The Latvia story might have steered you away from the the risks in Swedish banks.
Speaking of casting a wider net John Hussman had some interesting comments this week on the extent to which you can count on investor myopia resulting in behavior that is ultimately self destructive. He notes "it is impossible to ignore the rise over that same period of widely-viewed financial programming that is equally riddled with cartoonish content that encourages short-term thinking and speculation" all but mentioning Jim Cramer by name.
I don't watch Cramer or Fast Money (the afternoon version but I often see the 15 minute version during Power Lunch) but I can see where the shows might influence people to trade more frequently than is right for them. During that halftime report they go around the panel and call the close. I don't know but I have to think that the people who would be inclined to speculate on what the stock market might do in the last couple of hours in its day have no interest in what the Fast Money people think will happen. I also doubt that too many people really need to buy puts if the stock goes down another $0.50.
I also wonder how many people "have" to trade a stock ahead of the earnings, based on the earnings or based on the conference call. There is nothing wrong with this sort of trading on its face but there are not too many individual for whom this sort of thing is suitable. There are plenty of people engaged in exactly this type of thing who do not realize it is unsuitable for them and that is a problem in the making.
Another form of myopia; I guarantee that stock Medivation (MDVN) that dropped from $40 down into the teens on bad news from the FDA wiped out some person somewhere who owned only that name fully margined. In a less dramatic example, the next time emerging market stocks or commodity stocks go down a whole bunch there will be people that learn the hard way they had way too much exposure compared to what they should have had.
His point, I think, is that people do not learn from the mistakes they make. Everyone makes mistakes, you don't stop making mistakes but the repeating of the same mistakes hinders reaching the long term goal. Despite how obvious this should be, trust me when I tell you many folks lack the introspection to see this.