What is scarce in investing

October 18, 2024

I apologize for missing a newsletter. I'll make it up to you in the next few months with a bonus, I promise. Sometimes these newsletters are real doozies but every now and then there's a nugget of insight.

In September, One Day In July blasted through a billion dollars under management. We're excited about this. To everyone who helped by trying to spread the low-cost indexing mission to family and friends, thank you. Your words add real credibility for others.

There is a perception that good investing is dependent on consuming more information, and distilling that information. That was true in the 1970s and 1980s, when a small fry named Mike Bloomberg was getting started. Mike had the insight that information was the scarce commodity on Wall Street, and built a computer operating system to deliver that information in a fast and stable fashion (no CTRL+ALT+DELETE for him). Then he named the computer after himself, the "Bloomberg Terminal." He kind of liked that vibe, so he continued naming buildings after himself all over the nation's university campuses.

Today many people extrapolate that insight forward. But information is not the scarce commodity today that makes an investor successful, discipline is. There is lots of information and probably a lack of discipline as trading volumes surge.

Discipline, and lack of emotion, is a bedrock principle for good investment performance. But even better than lack of emotion, as Jason Zweig pointed out this May in the Wall Street Journal, is inverse emotion: "Buffett isn't unemotional; he is inversely emotional. He takes other people's feelings, turns them inside out and makes the resulting emotions his own." (1)

This is harder to do than it seems. Nothing in a normal childhood trains you to be the oddball. And certainly in the investment field, that group, who might perform well, is going to struggle to get clients because they seem different (when in reality, you want different). Most Americans will hand over their life savings to "the nice guy" at a big brand firm, before they will take the perceived risk of hiring someone who displays inverse emotions.

(As a side note, they're all "nice guys." You'd be nice too if you were being paid tens of thousands of dollars per client per year at a big firm to underperform the indexes while you play golf.)(2)

I don't want to give all of our secrets away to our golfing competitors. But to recap, these three ingredients must get structured into an investment strategy, and an investment firm, in a systematic way or you likely will end up with sub-optimal results:

1. Less news.
2. More discipline.
3. Inverse emotions.

Dan Cunningham

1. What Our Brains Know About Stocks - but Won't Tell Us - WSJ, 5/24/24
2. I should note that not every client is paying this amount at those firms.