Price For Clarity

The market hates ambiguity. That’s what we’re told, and on any short-term basis, we can see the market vote accordingly. In a world where investing has morphed towards algorithmic trading systems influencing daily volatility, many have come to accept this as a reasonable truth and participate by selling when things lose clarity or piling in when visibility is perceived.

This is a very easy way to invest. It is most comfortable on your nerves, by a longshot. Not only that, but in recent years it has worked well. After all, pretty much anytime that you may have bought Amazon (AMZN) or Netflix (NFLX) over the past decade (up until late summer 2018), you’ve paid a lot more for increased perceived visibility, but were awarded with even higher stock prices later. The price paid for supposed clarity stopped mattering long ago, exacerbated by a prolonged period of low interest rates. This seemingly safe and complacent market has also wooed individual investors and asset allocators (“AA” in the below right chart) back to the party successfully.

Such one-direction markets don’t require a lot of courage. Even the word may feel a little new in today’s investing conversation. A recent interview of well-known hedge fund manager Stanley Druckenmiller by Bloomberg’s Erik Schatzker asked what necessary qualities and characteristics might be required for success of a money manager coming into the business today. We love Mr. Druckenmiller’s response, and think it is timeless:

“I think the number one thing you need is […] courage, and when I say courage, you need courage to bet big and bet concentrated, but also the courage to fight your own emotions. I’ve never made a buy at a low that I didn’t feel just terrible and scared to death making it. It’s easy to sell at the bottom. […] When things are going up it’s easy to buy them, when they’re going down it’s hard to buy them.”

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Disclosure: This article contains information and opinions based on data obtained from reliable sources, which is current as of the publication date, and does not constitute a recommendation ...

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