Sorry, I was very busy. Rather than wait and post notes on several speakers, I thought it better to post each one as I complete it. As a reminder:

The CFA Institute conducted a conference on value investing in New York on November 29 and 30. The program was excellent. I am posting some of my notes and some of my favorite quotes from the presentations to give you a flavor of the event. This is not a summary of the presentations given during the conference—you had to be there—and my quotes may not be verbatim in all cases. Some were written down several hours after the event, but I think they are true in spirit. The notes reflect the things I heard and saw that resonated with me. Any comments I make are included in parentheses.

James Valentine of AnalystSolutions: Best Practices for Equity Research Analysts

James runs a firm that helps improve the efficiency of investment firms and analysts. He suggests that analysts focus on the tasks that directly and measurably help them generate alpha and push off those that seem urgent but do not help in generating alpha. 

• Don’t play defense; i.e. don’t read every word of every report on a company; there is not enough time in a day to do that and do great research
• Scan all information for the important data. Use third-party bot services that compare changes to financials, for example
• Admits that the above recommendations may put analysts in some uncomfortable situations. He once had a client ask him a question in a meeting about a railroad company’s plan to switch to a new engine. He said he did not know about the railroad’s plan, which made for an uncomfortable meeting. He later explained that the reason he did not know about it was that it would have had no impact on the firm as an investment. It was immaterial trivia that he would not have paid attention to in his analysis of the firm as an investment, but many investors spend hours on trivial details like that and many consider it their competitive advantage to be able to fluently discuss such trivia;
• What is it that makes great research great? “It is a view that is different from the consensus.” 

I am not doing justice to James’s presentation here because he outlines in detail many ways in which an analyst and firm can refocus on what is important. I suggest that you find his presentation and slides on the CFA Institute’s website.

Share on Facebook

“Since the investors of the ‘I Know’ school, described in chapter 14, feel it’s possible to know the future, they decide what it will look like, build portfolios designed to maximize returns under that one scenario, and largely disregard the other possibilities. The suboptimizers of the ‘I don’t know’ school, on the other hand, put their emphasis on constructing portfolios that will do well in the scenarios they consider likely and not too poorly in the rest. 

Investors who belong to the ‘I know’ school predict how the dice will come up, attribute their successes to their astute sense of the future, and blame bad luck when things don’t go their way. When they’re right, the question that has to be asked is ‘Could they really have seen the future or couldn’t they?’ Because their approach is probabilistic, investors of the ‘I don’t know’ school understand that the outcome is largely up to the gods, and thus that the credit or blame accorded the investors—especially in the short run—should be appropriately limited.

The ‘I know’ school quickly and confidently divides its members into winners and losers based on the first roll or two of the dice. Investors of the ‘I don’t know’ school understand that their skill should be judged over a large number of rolls, not just one (and that rolls can be few and far between). Thus they accept that their cautious, suboptimizing approach may produce undistinguished results for a while, but they’re confident that if they’re superior investors, that will be apparent in the long run.”

Marks opened his Chapter 14 with three great quotes, one of which I use all of the time:

We have two classes of forecasters: Those who don’t know–and those who don’t know they don’t know. –John Kenneth Galbraith

He closed the chapter with a quote that I will have to start using often:

It ain’t what you don’t know that gets you in trouble. It’s what you know for sure that just ain’t so.”–Mark Twain

As Marks said, “…investing as if you know what’s coming is close to nuts.”

Are you prepared to pick off bargains, or are you one of the people in the “I know” school who was fully invested on July 7 and selling indiscriminately today? Can you trust your contrarian instincts when those instincts are supported by hard, knowable data, or will you follow the herd and the prognosticators? Which way you answer often accounts for the difference between investment success and failure.

Share on Facebook