“The Bear” on Business

Have you ever heard someone describe their investment style as the following?

I follow the herd. I wait and see what everyone else is doing and then I follow suit. There is safety in numbers. How can you go wrong if everyone else is doing the same thing?

This is known as the “Herd Mentality”. If you have heard someone articulate it as such, give him a pat on the back for being honest and self-aware. However, don’t let him touch your life savings, as it is almost a guarantee this investor’s track record is not so stellar.  

My guess is you never heard anyone describe themselves in that way. Like Dr. Malcom Crowe, these people are dead and they don’t even know it. How do you know they don’t know it? Well, here is how most investors describe their approach:

I am a contrarian investor. I look for opportunities that are overlooked by other investors. I prefer to cut against the grain. I don’t like to follow the crowd.

The dot-com and telecom boom is too fresh in our minds to know this just can’t be true. Most investors are part of the herd. Just because they don’t know it doesn’t mean its not true. Warren Buffett credits the human tendency toward group-think as to why he has made phenomenal returns over a period of decades.

So the answer to the riddle is that most professional investors see themselves as contrarians.

The past two posts have been about the movie “The Sixth Sense”.  The purpose of the posts was to ponder “are you dead and you just don’t know it”.

This past Monday’s post was An Investor Riddle.  It asked “what is the style of investing that most investors profess to follow, but few do“. 

These three posts are related. That is, the answer to the riddle lies in the question of being dead and not knowing it.  You see, Warren Buffett sees dead people.  He knows they haven’t caught onto the fact that they are dead.  Like Cole, Buffett has come to believe his purpose is to help them.  Warren writes his trade secrets every year in his annual reports in an attempt to help these dead folks.  At the same time, he knows that self-realization of being dead is not easy for most of these walking dead.  As a result, Buffett knows he is likely to make extradorinary returns for the foreseeable future.

So, with this additional hint, have you solved the riddle?  As of the time of this writing (9:00am on Tuesday, January 15th), no one has. 

If you haven’t seen the Sixth Sense and want to, you might want to skip this post. The most fascinating part of the movie is the suspenseful and (for most people) completely unpredictable climax.

You recall yesterday’s blog: the young Cole Sear tells Dr. Crowe that Cole sees dead people all the time, and the funny thing is the dead people don’t know they’re dead. It turns out Dr. Crowe is having his own problems. His life has gotten kind of drab. His wife seems awful mad at him, and he doesn’t know why. How would he? She hasn’t talked to him in as long as he can remember. Nonetheless, Dr. Crowe believes Cole and wants to help him solve this dead person problem.

The solution to Cole’s problem, Dr. Crowe explains, is that Cole is supposed to help these dead people. So instead of being fearful of the dead, Cole needs to help them with some unfinished business so that they can move on to being dead for real. Well, with this problem behind them, Dr. Crowe needs to focus on his personal issues. Cole, in returning the favor, provides some helpful suggestions to Dr. Crowe.

At this point, Dr. Crowe still hasn’t seen the light. Neither did most of the movie goers. You see, the ironic twist is the reason Cole was spending time with Dr. Crowe. It wasn’t because Cole needed help; it was Dr. Crowe who was in need of assistance. You see, Cole’s mission is to help dead people, who don’t know their dead, sort through unfinished business. Well, the smart and savvy Dr. Crowe was dead and didn’t know it. Cole helped him discover this.

I’ll ask again: are you dead and you don’t even know it?

The Sixth Sense is one of my favorite movies. Bruce Willis played Dr. Malcolm Crowe; this was perhaps Willis’ best work. In the role that made him famous, Haley Joel Osment played the ~12 year old Cole Sear. Dr. Crowe is trying to help Cole overcome some pretty nasty problems. In the most memorable scene from the movie, Cole sheds some light on what is going on in his life.

Cole Sear: I see dead people.

Malcolm Crowe: In your dreams?

Cole shakes his head no

Malcolm Crowe: While you’re awake?

Cole nods yes

Malcolm Crowe: Dead people like, in graves? In coffins?

Cole Sear: Walking around like regular people. They don’t see each other. They only see what they want to see. They don’t know they’re dead.

Malcolm Crowe: How often do you see them?

Cole Sear: All the time. They’re everywhere.

Hmmm. All these dead people were walking around, and they didn’t even know it. Which brings up an important question–are you dead and you don’t even know it? Don’t worry–I am not getting philosophical on you. I mean this in a business sense. Over the next week, we will reflect on this question.

Most professional investors profess to follow a particular style of investing. In reality, most don’t follow this style, and this is why the style is so successful. The fact that most investors think they are following it allows the style to be effective year over year.

What is this style of investing? (Answer will be provided in a couple of days.)