and only if the judgments are superior is your performance likely to be above average. Only if theīehavior is unconventional is your performance likely to be unconventional. If your behavior and that of your managers is conventional, you’re likely to get conventional results – either good or bad. Of course, it’s not easy and clear-cut, but I think it’s the general situation. That people still talk to me about is a simple two-by-two matrix:
It was mostly about having high aspirations, and it included a rant against conformity and investment bureaucracy, as well as an assertion that the route to superior returns by necessity runs through unconventionality. In 2006, I wrote a memo called Dare to Be Great. In other words, you have to do something different. This brought home the key money-making lesson of the Efficient Market Hypothesis, which I had been introduced to at the University of Chicago Business School: If you seek superior investment results, you have to invest in things that others haven’tįlocked to and caused to be fully valued. I quickly recognized that my strong performance resulted in large part from precisely that fact: I was investing in securities that practically no one knew about, cared about, or deemed desirable. and I was making money steadily and safely. No one knew about, cared about, or deemed desirable. Now I was investing in securities most fiduciaries considered “uninvestable” and which practically In 1978, I was asked to move to the bank’s bond department to start funds in convertible bonds and, shortly thereafter, high yield bonds. This was my first chance to see what can happen to assets that are on what I call “the pedestal of popularity.” Thus, their devotees lost almost all of their money in the stocks of companies that “everyone knew”
“no price was too high,” did far worse, falling from peak p/e ratios of 60-90 to trough multiples in the single digits. And many of the Nifty Fifty, for which it had been thought that In 1973-74, the OPEC oil embargo and the resultant recession took the S&P 500 Index down a total of 47%. I’ve also written extensively about the fate of these stocks. For example, a common refrain at the time was “you can’t be fired for buying IBM,” the era’s quintessential growth company. Sentiment surrounding their stocks was uniformly positive, and portfolio managers found great safety (the leading investment managers of the day), were enthralled with these companies, with their powerful business models and flawless prospects. My first employer, First National City Bank, as well as many of the other “money-center banks”
ANOTHER WORD FOR RUNNING AROUND DOING THINGS FULL
I’ve written many times about having joined the investment industry in 1969, when the “Nifty Fifty” stocks were in full flower.
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