Humility Central To The Investment Process
Yesterday, I linked to a venture capitalist blog containing some of Jim Montier’s profound advice on humility and investing. I have received several comments from our readers regarding that link and have decided to dedicate a full post to the subject. Click Here to skip the introduction and Read Jim Montier’s Full Article On Humility & Investing
Article Introduction (Via James Montier Societe Generale)
I fear that somewhere there exists a secret school (a Hogwarts for brokers and investment managers) whose first rule is that one should ever admit ignorance, and where any semblance of humility is surgically removed. However, if one can accept that you can’t and don’t know everything (or even very much at all) then a number of insights into investment start to flow. For instance it makes no sense to forecast, the margin of safety becomes central as a buffer against ignorance/error, market timing should be eschewed, and finally cheap insurance should be sought out. Humility should be central in the investment process.
Article Excerpts (Via James Montier Societe Generale)
“The general model adopted in finance seems to be that we need to learn more and more about less and less until we know everything about nothing. The fear is that if we dont follow this path we will end up learning less and less until we known nothing about everything.”
“The margin of safety becomes vitally important. Because we cant know the future, we need to protect ourselves from errors. This is, of course, exactly what having a large margin of safety helps ensure. Any given estimate of intrinsic value will only be correct by luck. As such, building in a cushion to acknowledge our limitations is vital.”
Summary of Advice: 1. Don’t Forecast, 2. Margin of Safety, 3. Eschew Market Timing, 4. Hunt for Cheap Insurance
