To beat the market, do something different…

I was moved to think about ties again thanks to a weekend tweet by ex-Wallaby and current journo and author, Peter FitzSimons, with whom I stand ready to man the barricades against the tie’s resurgence.
The post To beat the market, do something different… appeared first on The Motley Fool Australia. –

pug dog going to work with nerd glasses and big ugly eyes, isolated on white background

Look, I’m pretty sure I’ve ranted about this before.

It’s the old corporate noose, a la the necktie. Surely, SURELY, its time has come, gone and should never come again. It serves no purpose, other than to unduly restrict. It is a relic. A fossil. Long may it remain so, and even when science can bring back long-extinct animals, may it lie at rest.

Yes, I know it’s not dead for everyone. There are, it seems, two groups who can’t escape its Windsor-knotted grasp: those whose professions seem still to demand it, and those poor tortured souls who, almost as evidence that irrationality will be always with us, choose to wear it.

I was moved to think about ties again thanks to a weekend tweet by ex-Wallaby and current journo and author, Peter FitzSimons, with whom I stand ready to man the barricades against the tie’s resurgence.

This is a hill I’m willing to die on.

I mean, seriously, who, in this day and age would voluntarily wear a tie? I get that there still seems to be a societal urge for newsreaders, lawyers, and other ‘serious’ types to wear a tie to convey some sort of respectability.

But really? 

I mean, they do it because we expect it, and we expect it because they do it. If ties had never been invented, would we suddenly ignore those who fight our legal battles or give us an update on what’s happening in the world?

Would our pollies really be respected less if they rose at the dispatch box with their top buttons dangerously uncaptured by the respective buttonhole a mere few inches away?

No. A thousand times no.

(And if you’re someone who says ‘yes’ to that question, keep reading… I have a cure for you.)

Why am I ranting about ties?

Well, because they’re ties, and they deserve to be cast into the fiery pits of hell. But also, because when I read Fitz’s tweet in the middle of a bout of gardening yesterday, it played in my mind.

Somewhere, mid-transplant of a climbing snow pea, the thought occurred to me: don’t some of us invest the same way?

And lo, an article was born.

No seriously. Stick with me.

Investors are a funny lot.

If we’re buying stocks, we all want to beat the market (or get the best possible income). And yet, I can’t tell you how many times I’ve heard a reader or member say “But the shares are going down” or “But so and so says it’s a sell”.

The reverse is also true: “Why aren’t you guys buying? Such and such reckons it’s a buy”

Now, I understand the sentiment.

But think about the reality for a sec.

If you’re trying to beat the market you can’t do what everyone else is doing… or else you’ll get the same return they get.

To get superior returns, essentially by definition, you need to do something different to the rest of the market. So selling because everyone else is selling, or buying because everyone else is buying, is rarely a smart idea.

To be sure, you have to be both different and right. And that’s not easy. But being the same gives you precisely no chance of beating the market.

Blue chip‘ stocks are my favourite example of the genre. By the time a company is a ‘blue chip’, who doesn’t already know about it? Haven’t all the potential buyers already bought it? Isn’t the share price likely — on average — to be pretty efficiently set?

I think so.

‘Blue chips’ have essentially just won the popularity contest. Which, unfortunately, offers little to help us, when it comes to looking into the future. They are, taking me back to my theme, the neckties of the stock market. Little more than an outdated social construct.

Would our lawyers really be less educated or erudite in open-necked shirts? Would our newsreaders suddenly lose the ability to convey and interpret world events?

Or the reverse: would a poor, hapless, Motley investor, forced into antiquated neckwear, start picking better stocks, just because his shirt was affixed at the top button?

Of course not.

We follow convention because it’s simple. It’s easy. Humans developed social cues as an easy, instinctive way to signify position or role.  The same is true of uniforms — formal and otherwise.

The problem isn’t with neckties, or blue chips, themselves. It is with the significance we give them, justified or otherwise. Einstein in a t-shirt is Einstein. A fraudster in a tie is still a fraudster.

These days, there are only three events to which I wear a tie: weddings, funerals, and ANZAC Day services. Otherwise, I choose more comfortable, functional clothing.

The same should be true for investing. Don’t invest in companies because others tell you they fit in a particular group (‘Blue chip’, ‘FANG’, growth, value).

Don’t invest in companies because all the cool kids are, or because the share price is rising.

My erstwhile colleague and current Motley Fool Money podcast co-host Andrew Page hit the nail on the head, last week when he referenced one of his favourite news cartoons. There were arrows pointing in two different directions.

The one pointing left was labelled ‘Easy but Wrong’. The one pointing right? ‘Complex but Right’. And of course, in the cartoon, 99% of people take the road to the left.

As with all of these types of cartoons, it’s funny because it rings true. We do that in life, too often, too.

The moral of the story?

As with neckties, the ‘accepted wisdom’, ‘conventional wisdom’, and even ‘common sense’ in investing should be scrutinised carefully.

Sometimes, the crowd is right. Sometimes it’s wrong.

But don’t just accept what you’’re told. You have to do the work — or find someone you trust — to work out the difference.

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The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post To beat the market, do something different… appeared first on The Motley Fool Australia.


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