Ancient Chinese philosopher Lao-tzu once said, "He who knows others is wise; he who knows himself is enlightened." Learning to overcome one's own emotions and bias can be one of the single hardest hurdles than an investor faces. It is equally challenging to discern between advice and noise by "experts" in any given field. Today's Outside the Box is written by my good friends Mark and Jonathan Finn where they address some of the psychological difficulties confronted by investors.
For those of you unfamiliar with this father son tandem, Mark (father) and Jonathan (son) run Vantage Consulting. Mark was the former chairman of the Virginia Retirement System and has a distinguished academic career. He consults with large pension funds and high net worth investors, as well as sits on the board of several large mutual fund families. Jonathan is well-known for his research on the topic of past performance and is a chartered financial analyst. In their article "A Look in the Mirror," they take a look at systematic errors in the investment field and how to deal with them.
We all have something to learn from looking introspectively in our decision making efforts. I hope you find this piece to be both enlightening and "outside the box."
I am pleased to present to you a thoughtful piece by good friend and business partner Jon Sundt in today's "Outside the Box." Jon is the President of Altegris Investments and a very insightful thinker.
In his article "Lost in America? Asset Allocation and the Old Brain," Jon takes a look at some of the psychological challenges we face in investing. He further goes on to discuss why asset allocation is such an important component to any investor's strategy amidst of an increasingly global and complex investment platform.
For those of you unfamiliar with Jon and Altegris Investments, they are my domestic partners headquartered in La Jolla, California. They provide high net worth investors and institutions with specialized alternative investments including managed futures, hedge funds and fund of hedge funds.
May you all enjoy this year's kick off of the festive season with great family, loved ones and friends. I trust that you will find Jon's piece to be very "Outside the Box."
In my Friday letter, Thoughts from the Frontline (you can view it here), we looked at how valuation and prices change over market cycles. As I mentioned and have written about extensively in my book Bull's Eye Investing, market cycles should be viewed in terms of valuation and not prices. But how does one capitalize on such a way of thinking? Today's "Outside the Box" will show how several valuation styles and categories have performed over different time intervals, how each styles compares to the other and how each style meshes with the other.
The piece titled "Just a Little Patience" is written by my good friend and fellow investment colleague, James Montier. James is the Director of Global Strategy at Dresdner Kleinwort Watterstein, a London and Frankfurt based investment bank. He is also a prolific writer and author of the book "Behavioral Finance - Insights into Irrational Minds and Markets."
Aided by data from the Quant department of his firm, James dissects a large amount of information in order to present a well-researched report on how value and growth strategies work over time. His conclusions show how patience (defined as a longer time horizon) favors the value investor and hurts the growth investor. One particular note of interest is where James shows the results of a value component in a growth strategy and vice versa.
A key insight to gain is that the prudent and disciplined investor is rewarded for not wavering in his investment methodology, while those that do achieve lower returns. This is one of the more in-depth editions of the year and I trust that you will find it to be "outside the box."