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Investment Analysis Clubs / Value Hounds
|Subject: Re: Depth of DD||Date: 2/10/2013 9:03 AM|
|Author: captainccs||Number: 13463 of 21899|
There is a big dark secret being kept hidden from market analysts, a secret that has been scientifically demonstrated by particle physicists, but a secret I dare divulge to you, for your eyes only! "You can't predict the future." Nature doesn't know what she's going to do next, not even at the sub-atomic particle level. But somehow, at the macro level, many things are practically predictable like the Sun rising every day -- until it doesn't. Scientists studying how economic ideas evolve have shown that new ideas come about at random but always based on a combination of what has come before. The scientific term for this is "the adjacent possible." John Boyd was one of the few who figured out how to turn this random generation of ideas into a procedure humans could follow that was likely to accelerate the process: "analysis-synthesis, destruction-creation." He also developed the OODA Loop to better kill the pray or to defend against the predator as the case may be but that is a different subject -- or is it?
Now that we know we can't predict the future, what is the best way to navigate into that uncertain future? That is really your question. The scientific method consists of observing nature to see what she does, making up theories to explain what she does and building experiments to see if they support or contradict the theory. Rinse, repeat, get Nobel Prize if lucky.
One feature of the investment market is that only one in four investors beat the market. If a loser becomes a winner someone else will become a loser to maintain the one in four ratio. The OODA Loop is needed, after all, to kill your stock market adversary before he kills you! Investors don't think along these lines but they do admit that what works today might not work tomorrow and they are spot on. But some very few investors do manage to have a lifetime superior achievement. They are the ones we should learn from.
To this day it's Peter Lynch I've been most successful in learning from. Lynch does not just do one thing, he does different things depending on the type of company he is investing in: Stalwarts, turn-arounds, cyclicals, retail, and so on. Don't go hunting for tigers with mouse traps! The one thing his various approaches seems to have in common is that he puts a greater weight on the "story" than on the "financials." It would seem that a good story attracts him and bad financials turn him off, not the other way around. His researching to story is deep but his researching the financials is rather shallow compared to what others do. You might say that a good story attracts him provided bad financials don't turn him off.
Beating The Street is a pithier name than OODA Looping the Street but that's what Peter Lynch means.
I'm going to have some breakfast now.
Beating the Street by Peter Lynch (Author), John Rothchild (Contributor)
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