Thanks a lot for sharing, Joachim ! It'd be interesting to find out to which extent these findings can be transposed into the analysis of PE/VC portfolios, where hyper-connectedness & hoarding are also known phenomena...
Hard to say, but there is definitely a lot of herding in the VC space and my guess is that GPs that stray from the heard and invest in unfashionable sectors will get better returns.
Agreed. In my view your post and the study can also explain why thesis-driven, focused (& smaller ...) funds can outperform larger, generalist entities over the long run.
'Instead of being embarrassed, we view our ability and willingness to look stupid as a competitive advantage. If there were market leaders in looking stupid during irrational markets, we would like to think we’d be on the short list. As long as performance deviations aren’t due to valuation errors or permanent losses to capital, investing differently during periods of inflated prices may not be stupid at all, but a sign of discipline, perseverance, and even intelligence. In other words, looking stupid is not the same as being stupid.
The secret of looking stupid is not caring about what other people think. Perception risk is a very real and underappreciated risk in the investment management industry. In our opinion, it’s one of the leading threats to maintaining investment discipline and one of the reasons so many active funds act the same as their peers and benchmarks. If you’re constantly concerned about what your firm, peers, and clients think about you, you’ll never master the art of looking stupid.'
Useful article. Retail Fund managers can “herd” too: many tend to buy the same stocks regardless of their purported investment style; and some hold 100 stocks which is just a closet tracker.
Now - How do I find a “peripheral” fund manager ……. [Nick Train? Terry Smith?].
The reason "The Big Short" was so popular was its view that one has to be eccentric, outrageous, annoyingly (endearingly?) anti-social, or even autistic to make outrageously successful macro bets or short sales to zero. This is a well-worn dramatic trope https://en.wikipedia.org/wiki/Hero%27s_journey ... "Moneyball" is similar. But then everyone goes home from the movie theatre and puts their retirement money in index trackers ;-)
Thanks a lot for sharing, Joachim ! It'd be interesting to find out to which extent these findings can be transposed into the analysis of PE/VC portfolios, where hyper-connectedness & hoarding are also known phenomena...
Hard to say, but there is definitely a lot of herding in the VC space and my guess is that GPs that stray from the heard and invest in unfashionable sectors will get better returns.
Agreed. In my view your post and the study can also explain why thesis-driven, focused (& smaller ...) funds can outperform larger, generalist entities over the long run.
The art of looking stupid
'Instead of being embarrassed, we view our ability and willingness to look stupid as a competitive advantage. If there were market leaders in looking stupid during irrational markets, we would like to think we’d be on the short list. As long as performance deviations aren’t due to valuation errors or permanent losses to capital, investing differently during periods of inflated prices may not be stupid at all, but a sign of discipline, perseverance, and even intelligence. In other words, looking stupid is not the same as being stupid.
The secret of looking stupid is not caring about what other people think. Perception risk is a very real and underappreciated risk in the investment management industry. In our opinion, it’s one of the leading threats to maintaining investment discipline and one of the reasons so many active funds act the same as their peers and benchmarks. If you’re constantly concerned about what your firm, peers, and clients think about you, you’ll never master the art of looking stupid.'
https://www.palmvalleycapital.com/post/the-art-of-looking-stupid
I love that. It's right up there with Mawer's "Be boring, make money" slogan.
Useful article. Retail Fund managers can “herd” too: many tend to buy the same stocks regardless of their purported investment style; and some hold 100 stocks which is just a closet tracker.
Now - How do I find a “peripheral” fund manager ……. [Nick Train? Terry Smith?].
The reason "The Big Short" was so popular was its view that one has to be eccentric, outrageous, annoyingly (endearingly?) anti-social, or even autistic to make outrageously successful macro bets or short sales to zero. This is a well-worn dramatic trope https://en.wikipedia.org/wiki/Hero%27s_journey ... "Moneyball" is similar. But then everyone goes home from the movie theatre and puts their retirement money in index trackers ;-)