Wealth Accumulated

By D J Thomas, a large-cap stock market value investor and financial writer

Behavioural finance

Green shoots of recovery and the value approach

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Potatoes have to be the simplest vegetable to grow, which is why I grow them every year without fail.

Here you can see their stems poking out of the ground in my back garden/yard through tough, dry, rocky, clay soil.

The process is as follows:

1) make a hole in the ground 10 centimetres deep, place the seed potato in the hole, and cover it with soil.

2) make sure potatoes are planted 60 centimetres apart in all directions to allow for adequate growth

3) the picture shows how I’ve ‘earthed up’ the potato plant stems with soil to protect potatoes from sunlight which will turn them green otherwise. It also helps the plant grow more potatoes.

I planted potatoes in early March, but last Autumn I completely weeded the ground and added grass clippings from my own garden and a neighbour’s to decompose over winter.

If you’re in climate zone 8 like me there are potato varieties that you can plant right through to late August in time for Christmas, but do ask your local supplier who will be happy to advise you.

Green shoots and the value approach

One of my jobs as an investor is to prepare the ground from a philosophical and practical framework of investment operations.

A value approach that makes sense to me in the same way that your favourite musician makes sense and speaks to you.

Planting potatoes into the ground without prepping it is possible but not optimal.

My preparation for recent investments has been a years-long love of reading books, annual reports, blog articles, and newsletters on subjects ranging from digital marketing, ancient philosophy and gardening in addition to value investing.

One of the greatest discoveries of the value approach is that it does not matter if the economy is experiencing green shoots of recovery or recession; a key role of the value investor is to discover the intrinsic value of a listed business and purchase its stock below that value.

In my whole life, I’ve never known no wise people (over a broad subject matter area) who didn’t read all the time – none, zero

Charlie Munger

There really is no substitute for amassing knowledge from consuming the thoughts of others who have done what you want to do and what you want to achieve.

Fundamentals are about noticing that it is raining today

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I’m in a perpetual state of scholarship when it comes to financial markets and used to suffer from a little snobbery: I used to be naive enough to think that traders, as opposed to investors, couldn’t teach me anything about value investing or fundamentals.

That is until I started listening to Hedge Fund Market Wizards by Jack Schwager.

Here’s a quote from one of Jack’s interviewees Colm O’Shea, founder and Chief Investment Officer of COMAC Capital, a global macro hedge fund trader based out of London.

Fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today. The great trades don’t require predictions. The Soros trade of going short the pound in 1992 was based on something that had already happened; an ongoing deep recession that made it inevitable that the UK would not maintain the high interest rates required by remaining in the ERM. Afterward eveyone said ‘that was incredibly obvious’. Most of the great trades are incredibly obvious.

Colm O’Shea

For me, that first line ‘fundamentals are not about forecasting the weather for tomorrow, but rather noticing that it is raining today‘ is extremely powerful because it focuses the mind on the now (common sense) rather than the later (speculation).

As necessary as it is to listen to the talking heads of the mainstream financial press in order to avoid what the market is doing, resisting the urge to get drawn into their incessant predictions can become tiresome.

Like the Dementors from the Prisoner of Azkaban, the majority of MSM financial jockeys are relentless soul-suckers:

Dementors are among the foulest creatures that walk this earth. They infest the darkest, filthiest places, they glory in decay and despair, they drain peace, hope, and happiness out of the air around them… Get too near a Dementor and every good feeling, every happy memory will be sucked out of you. If it can, the Dementor will feed on you long enough to reduce you to something like itself… soulless and evil. You will be left with nothing but the worst experiences of your life, and you will just be an empty shell that lost its soul

Remus Lupin

My disdain for them is self-evident.

So in order to combat their vampire tendencies, focus on the fundamentals just like O’Shea preaches, and replenish your mind body, and soul with a committed behavioural finance practice as an antidote for having to share the same digital space as these creatures of the night.

I work out daily

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I work out daily

Well I work out daily. I feel like I have to do it. So, either play tennis or go running or lift weights or something like that

Lauren Templeton

Emphasis mine, but Lauren’s need to workout or be active in some way everyday is strangely familiar.

I don’t actually work out daily but I would love to. My primary exercise of choice is weightlifting. The maximum amount of times per week I can lift without crossing the threshold of over-exercising is four times.

Trust me I’ve found out the hard way.

Even then I tend to only lift for a block of about six or seven weeks, then switch focus to meditating.

Just in the same way that lifting weights leads to a strong body and mind, resetting my nervous system with meditation aids clear thinking, which is what I think Lauren is getting at.

Working out daily: a behavioural finance practice

To ‘work out daily’, I pursue, art making, growing flowers and vegetables from seed, reading, praying, spending time in nature, and spending time with other men away from family commitments and financial markets.

It’s pure bliss to completely switch off from balance sheets and the global financial news flow.

Beetroot seedlings, or it could be Swiss chard

To me working out daily means taking time out for yourself every single day to do something that John Wineland describes as soul-nourishing for men:

The masculine needs four key nutrients for the nervous system to truly ground and reset. The first is time alone with no demands, which is not the same as meditation. The second is creating time to receive the gifts of the natural world. Third is time spent in depth and reflection with other men. Which is even better when there’s no demands and nature is involved…the fourth is making yourself available for the boundless energy in your feminine partner.

John Wineland

John typically works with self-identified hetro men and women, but mostly men, in the realm of love, relationships and truly connecting with the core of who you are from a masculine or feminine perspective.

Grounding your nervous system by engaging in his four key practices and meditation is the way to do it. I’ve adapted it to include lifting and suit my own wants and desires but the principle remains the same.

Working out daily is to swap a cluttered, tense, and unconscious mind and body with a calm, awakened consciousness, and relaxation. I’ve found that this state of consciousness is vital to remaining objective not only in the value investing research process but to decision-making in the remaining aspects of your daily life.

This is the essence of my behavioural finance practice.

James Montier on investment research

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I’m reading listening to The Little Book of Behavioral Investing, by James Montier choc full with numerous tidbits of practical advice for even the most seasoned of investors.

Here’s what he says in regard to investment research:

We should do our investment research when we are in a cold, rational state, and when nothing much is happening in the markets. And then pre-commit to following our own analysis and prepared action steps.

James Montier

By pre-commit, Montier is referring to what John Templeton used to do to remain faithful to his own investment research; by placing buy orders with his broker from a pre-determined list of stocks researched during a bull market.

I must admit that takes guts, especially when the market is selling off and everyone is heading for the exits.

Placing buy orders would take a lot of the sting out of the emotional turmoil involved in such a cold-blooded approach.

But if we are to learn from past masters and emulate their genius then there really is no choice.

Pre-commit, or succumb to the emotionality of the markets.