Spero Consulting

Archive for December 10th, 2008

…(Nor even an Indi­ca­tion) of Future Performance.

Here’s an excel­lent exam­ple: The Stock Picker’s Defeat. The arti­cle is from today’s edi­tion of The Wall Street Jour­nal, and describes William H. Miller’s initial, long-term suc­cess and his sub­se­quent (and recent) extreme lack of suc­cess while invest­ing at Legg Mason.

It seems that for a long time, Mr. Miller had a rep­u­ta­tion as a savvy investor. It seems that time might be past. Our guess is that his com­pe­tency – high or low – hasn’t changed through the years, but it seems that his luck has changed for the worst, and unfor­tu­nately, luck often over­whelms competency.

We hope to some day under­stand how rep­u­ta­tions are made – how peo­ple get to be finan­cial geniuses – at least for a lit­tle while – or pop­u­lar “mod­ern” artists (although we doubt that we’ll ever under­stand that).

We don’t mean that we want to under­stand eco­nomic mod­els of rep­u­ta­tion. We under­stand those now, and we’ve not found them to be very help­ful for our purposes.

We want to under­stand what causes or moti­vates peo­ple to lose their skep­ti­cism – if they had any to start with – and accept some­one as, say, a can’t-lose “genius” investor or what­ever rather than view him as a large risk (with, hope­fully, a cor­re­spond­ing large expected return). What hope or psy­cho­log­i­cal need per­mits such credulity?

Given the obvi­ous roles of luck and good for­tune – how for­tu­nate we are to live now, to be born here, to have food, shelter, lib­erty, a blog, family, health, and on and on – in life and many endeav­ors, what causes folks to for­get that luck and for­tune and see cer­tainty where none exists or where cer­tainty may have existed but can eas­ily dis­ap­pear like a puff of smoke – just like the value of Mr. Miller’s invest­ment funds?

For some rea­son – maybe not a good rea­son – it reminds us of the apoc­ryphal Chester­ton quote, “When a man stops believ­ing in God he doesn’t then believe in noth­ing, he believes any­thing.” Maybe that includes magic invest­ing skills, but we sus­pect that many of the devout are equally gullible.

Who says that mod­ern man is no longer super­sti­tious, espe­cially where the mar­kets are concerned?