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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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In the end, each market instant and each investor has to reassemble the pieces to grapple with our task of forecasting imponderable outcomesYou are holding in your hands what we hope is a treasure. To us, it is. We are sharing our friends, our heroes, and their wisdom with you. Depending on future conditions, some of the wisdom will be invaluable . . . and some you will wish you had not heard. But each comes from a noble effort to penetrate the minds and insights of the best investors. And try to let each of them sparkle for you as they do for us. This volume began its life as The Ultimate Investor, published in 1999 by Capstone Publishing Limited in the United Kingdom. We have updated many sections but preserved the basic point that the personalities of great investors influence their selection of styles. In some places, we have changed emphasis since markets in late 2001, when we are writing these notes, are vastly different than in early 1999. The note of skepticism that underlay our observations in the first publication may be a helpful enduring attitude, although experience in the past few years may make it seem rather obvious. But we are not trying to rewrite history or overcorrect. If the notes of 1999 seem too repetitive, we could have selected almost any other year in the last decade or two and used it equally well as a basis for our observations. We hope our points are useful to you today . . . and tomorrow. We have tried to approach a moving target as best we can treating thirty ideas and thirty-plus people. The ideas are not neatly bounded so that they exist without important and active relations with other elements. Rather, they are part of the market soup, boiling and vibrant, which is constantly evolving in the interplay of mathematics and personalities. We can pretend that each element is distinct only for the purpose of descriptive analysis. But, in the end, each market instant and each investor has to reassemble the pieces to grapple with our task of forecasting imponderable outcomes. We have tried to simplify the ideas, at times borrowing from the writings of the personalities or gurus who are associated with the ideasand borrowing from the ideas of others. None of us as investment students and practitioners lives in isolation: We are all part of the mosaic being analyzed, shard by piece. At times, we may seem glib and cavalier. It is merely in our attempt to be concise about things that defy precision. So now that we have started with our limitations, what will we be doing to merit your attention? Answer: give you a grounding in the ideas and people who have brought us to todays market understanding. These people have also shaped tomorrows market. They might not know it yet but theyand others we have omitted or do not knowset the base for innovation. You need to know them and their work. They are your investment futureat least your future in ways we try to understand for you. Ours was a seamless collaboration despite living an ocean apart. We had two in corpus (face-to-face) meetings and a daily dozen e-mail iterations. We could have been sitting at adjoining desks swapping papers and marker pens back and forth. Instead, it was done electronically. And we posted the chapters on Deans website in nearly finished form for comment by gurus, potential readers, and the publisher. It was possible for us and others to see the book arise in its entirety as it neared completion. And we hope this openness will promote more sales of the hard copy. We would do it again just the same way. In our discussion of investment ideas, we talk equally about people because it is the people who have the ideas. The best investment ideas, in our opinion, are consistent with the psyche of the people who have them. The clich managers do not pick markets, markets pick managers refers to the possibility that it is the style of the day that plucks some investors for greatness rather than the other way around. The managers who succeed are most often confident of their views to the limits of arrogance, hate to see their ideas diluted in the interest of diversification (unless diversification was their idea), and are eager to display their market wit. Mostly they are colorful characters, most known and liked by at least one of us. In each chapter we describe an idea. Then we talk about one or two people associated with the idea. We also introduce the counterpoint: the downside and limitations of the idea. And we have asked each person discussed (where, as in most cases, they are still around) to react and comment if they wish: Many of our gurus have kindly taken up the challenge. Each chapter concludes with suggestions for the next steps, if anyideas for application and researchand recommendations for further reading whether in print or online. In addition to our main chapters, we have two introductory pieces: one by Peter Bernstein on the history of the markets over the past fifty years, which he has kindly allowed us to reprint; and another by Dean on changing investment styles across time and space. We have also included a discussion of ten key issues related to the world of investing plus ten broader, more global questions, and a selection of ten investment classics by James Fraser. In addition, there is a webliography, a list of recommended investment websites for further study and sometimes fun reading. Between the writing of this book and its printing, the terrible events of September 11, 2001, changed the world and our view of it. The world does not have clearly defined boundaries. It is complexmushy, undefined, dynamic, robustwith shifting shades of gray that cannot be defined in slogans of black and white. Complexity scientists have the thinking tools to help and will flesh out their ideas inot concrete policy recommendations. To many, globalism is corruption, political repression, and American profiteering. American readers should come to know more accurately the thoughts of others and why they think them. Comment is needed from other places. Ideally the United Nations (U.N.) should act as a clearinghouse but many governments of the world are not representative of their people, and the U.S. disdains the U.N. because of things such as its abortion policy and bureaucracy. U.S. leaders are successful Darwinian-Newtoniansthey understand command and control; they know how to marshal force to beget force from defined opponents; they are the successful generals of recent warsand those have been the most dangerous. If the U.S. finds that the world does not march to its tune, it will pull away. A nation cannot network and be secure from all future viruses. The only way is to separate. America first means America alone. To investors asking what these conditions mean for the future, we offer a few thoughts. We are likely to be moving into a long period when the return on bonds is equal to or greater than the return on equities. This is not a bear market forecast but, rather, an observation that capital raising may be from governmentswe wont hear the word surplus for a long whileand there is a long-term argument for lower to no equity premiums. In a bear marketand it is not a dispute that we have one, rather at what stagepeople blame themselves for the error and they have psychological instead of financial reactions, rather like Elisabeth Kubler-Rosss famous list of the stages of dying: Confidence that the market will come back Searching for confirming experts that the market will come back Anger at the market and at analysts with high salaries and conflicts Ignoring markets information since it is a long-term investment Intense study of the market for the best exit time Selling on any signal up or down Swearing off investment and ignoring the market commentary We conclude our thoughts with a profound, elegant, and simple wish for our complex world: It has been said that to one who is good, the whole world becomes good. This is true so far as the individual is concerned. But goodness becomes dynamic only when it is practiced in the face of evil. If you return good for good only, it is a bargain and carries no merit, but if you return good for evil, it becomes a redeeming force. The evil ceases before it and it goes on gathering volume and momentum like a snowball till it becomes irresistible. Mahatma Gandhi, 1869-1948, Indian nationalist and spiritual leader Numerous people have contributed to our thinking about these ideas over the years and we would like to thank them all. In Deans case, he learned from clients who became friends, among them Gordon Binns, David Feldman, Robert (Tad) Jeffrey, and William Wirth, all investment gurus. Particular thanks go to our friends, family, and colleagues who helped directly with the writing of this book: our gurus, of course, plus Mark Allin, Richard Burton, Annemarie Caracciolo, Donna Carpenter, Stephen Eckett, Tom Fryer, Steve Gage, Kate Holland, Blake LeBaron, Matt Pollock, and Pamela Van Giessen. If we could separate a name from the list of acknowledgments and put a ring of stars around it, we would do so for Marilyn Pitchford. She is more than our coauthor for the companion volume, Dean LeBarons Book of Investment Quotations; she has also contributed to and smoothed the language in this volume and dealt with all the editorial and mechanical details so they would be correct and timely. She is a star in our eyes, and, if you enjoy and learn from our book, she should be in yours too. |
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