The Arrogance in Ideas
What if my investment ideas were a symptom of my arrogance? To think an opportunity exists in the public markets carries an implied belief other investors in charge of billions of dollars are ignoring or unaware of it.
The prudent step would be to test the hypotheses and see what might’ve presented the opportunity. There could be all kinds of reasons from structural (i.e. tight volume or size), regulatory, differing goals, etc. But, here’s a thought: What if most ideas I have are life’s way of grabbing onto my weaknesses?
“Life will seek out your weaknesses.” - Guy Spier
That was something Guy Spier said in an interview. He applied the advice to life broadly. But I zeroed in on all the simple investing ideas I had over the years. The kind of ideas some might call “first-level thinking.”
They were simple ideas like buying cigarette companies because no one wanted to be associated with them, despite how profitable the businesses were (they are literally selling paper). This included all the ESG reasons as well. To be clear, it’s not that I don’t think environmental, social and governance issues aren’t important. It’s that I know most fund managers use it as a trope to make more money. Outsiders treat ESG like it’s worth something but insiders know it’s another marketing gimmick. It’s just one more thing that plays into ideas I have of buying companies that appear like a PR disaster for funds.
I’m talking about gambling companies, strip clubs, oil companies, companies in countries Americans are taught to dislike, etc. They are all businesses that are ignored for reasons of conformity with a social narrative. But that’s such a simple reason.
Investing and the people who make decisions are complex. People do things for much deeper reasons than just making money and wanting people to like them. There’re deeper reasons underlying such motivations.
Yet, the fact I think these are ideas worth pursuing shows a weakness of mine. That’s arrogance. I must be arrogant to think I have the ability to make this “rational” decision because everyone else is a victim of some social paradigm.
In essence, I’m underestimating how much thought people would’ve put into their decisions. Now, I’m sure there are plenty of people who do not. But I’m inclined to believe most have their reasons that go much beyond my first level thinking of why some companies are ignored.
The market isn’t perfectly efficient. But, for investing to work, it has to be efficient at times. Being contrarian for contrarian’s sake isn’t a smart strategy. I might just be wrong and it’s a weakness of mine to not be able to see that.
I’m lucky that my bias for nonaction stops me from committing to such simple bets. Some say the simple bets are the way to go after their “learnings” from the 2020 COVID crash. Who knows? Maybe they’re right. But I know I’m biased to think the average investor hasn’t put much thought into their investing.
It might be wrong but it’s true. I’ve just got to work on fighting that impulse and look at such simple ideas and ask myself “Really? Is that the only reason why they wouldn’t invest in these companies? Is there really a great opportunity here?"Most of the time, the answers tell me to look the other way.
The primal desire to feel right at things others ignore is another motivator for such arrogance. It’s not a good way to invest. But the market has a way of really tugging at my weaknesses. It’s good to know these ideas and urges are actually my weaknesses and not my strengths.
This motivation to be right by being contrarian is akin to a desire to stand out. That’s not to say standing out is bad. There is standing out as a result of doing something of value. But there also is standing out with cheap signals like clothing, what I say, etc… just to get attention. That’s what I think is transpiring in my head when I get attracted to various companies because everyone seems to dislike them. I’m like a moth to a flame there.