More Montier

A site called Simolean Sense posted a lengthy interview with James Montier who of course now works at GMO. Montier's comments were really a smorgasbord behavioral observations, assessments of psychological obstacles and other useful nuggets.

First up was that while he does a lot of reading he said most of what he reads is more about studying human behavior the specific market information. I would characterize this in part as benefiting from other people's mistakes. While this is useful I might fine tune it some to each person needing understand what they are vulnerable to. There are plenty of fallacies and other types unproductive behaviors that impede investment success and no one has all of them. This requires introspection.

He also talked about information overload. This contrasts nicely with the quote yesterday from Jim Rogers who believes in watching everything. I probably fall closer to Rogers but what I would add is that I like to read people that I know I will disagree with.

Coincidentally I exchanged emails with a buddy who asked me what I thought of a particular blogger. The blogger in question does a great job with isolating relevant issues and then asking the right questions but he often answers those questions incorrectly or does not seem to read the data correctly with some of his opinions. He is not always wrong obviously and not wrong even half the time but even though he is obviously wrong some portion of the time there is value in the issues he isolates so I read him. The need to sort out and even dismiss is handy skill to have in trying to study markets.

Montier said people focus too much on the outcome not the process in a sort of live in the moment comment. But then a few sentences later he said;

It appears as if investors have a chronic case of attention deficit hyperactivity disorder. The average holding period for a stock on the New York Stock Exchange is just 6 months! This has nothing to do with investment, and everything to do with speculation. Having a longer time horizon than these speculators appears to be one of the most enduring edges an investor can possess.

In a way each sentiment could be saying two different things. I would tie them together by noting that there is no single process that can be the best every day, quarter or year. Hopefully whatever your process is you have reason to believe it gives you a chance to get the job done in the long term, whatever that means to you. Focusing on process could mean not losing faith in a reasonable method during one of those periods where that method is not the best.

The idea of a longer time horizon being an enduring edge is similar to Hussman's thinking in terms of measuring the result over an entire stock market cycle which has been a big influence on me. I know plenty of people view portfolio construction and cycle navigation differently than how I do but the task is much easier when you embrace the fact that big declines happen every so often, you will not "outperform" the market every year and a simple yet reliable defensive trigger point for defense can go a long way to enduring through with less emotion and less emotion should result in fewer mistakes.

One last item was a quote that Montier cited from Paul Samuelson “Investing should be dull, like watching paint dry or grass grow.” Personally I find the work exciting and interesting but I do spend a lot of time trying to make the portfolio dull.