Tuesday, December 21, 2010

Can’t Model the Art of Investing

At Pinnacle we are constantly reading investment views from some of the world’s smartest people. Recently I picked up a piece written by Howard Marks of Oaktree Capital called “All That Glitters.” The focus of the article was on gold, and it raised some great points to consider regarding the shiny metal and whether or not it’s a good investment at today’s prices. I wouldn’t be surprised if it shows up in a future issue of Advisor Perspectives, and I’d encourage anyone that has the time to read it if it does.

However, the passage from Mark's piece that prompted this blog was not about gold, but more a description of one of the arts of investing. The paragraph that I thought was articulated in brilliant fashion is below:

But it goes further. Especially in the short run, the superior investor may not be the one who's right about the merit of something, or even the one who's right about the consensus view of merit. Rather, the superior investor may be the one who's right about the judgments other people will make about the consensus view of merit.
Pinnacle is a company that follows business cycle data, technical market conditions, and valuation, and there is no doubt that the weight of the evidence in those areas helps shape our overall view. However, we also realize that investing is as much art as it is science. Many investors are still searching for a scientific approach to investing that leads itself to quantitative models, thinking that the unemotional data can never do them wrong. We don’t believe you can package what Marks is referencing into a model. For that you need informed intuition, and a good dose of common sense. If anyone has a model that can bottle good out of the box thinking let us know. We won’t hold our breath…