A Reminder from James Montier re: Fat Pitches
- Joshua M Brown
- January 3rd, 2012
We're doing a massive rebalance across client accounts this week here at the shop. There are some active managers we're saying goodbye to, some new names being added to the portfolio and there's a new addition to the ETF side of the ledger.
But there is certainly no major change to our allocations, weightings or inclinations just because the calendar turned over. It simply doesn't work that way.
We don't mind having some risk on but there's simply no compelling rationale to get aggressive here. The concept at this juncture remains a focus on upside capture and enough cash to be flexible until some real trend materializes. And if the year begins with a 20% face-ripping rally and we only capture a portion of it, so be it.
For more on this topic, I'll direct you towards James Montier (GMO) and his epic Seven Immutable Laws of Investing piece from March of last year.
Here's James on Waiting for the Fat Pitch (rule number 3):
3. Be Patient and Wait for the Fat Pitch
Patience is integral to any value-based approach on many levels. As Ben Graham wrote, “Undervaluations caused by neglect or prejudice may persist for an inconveniently long time, and the same applies to inflated prices caused by over-enthusiasm or artificial stimulants.” (And there can be little doubt that Mr. Market’s love affair with equities is based on anything other than artificial stimulants!)
However, patience is in rare supply. As Keynes noted long ago, “Compared with their predecessors, modern investors concentrate too much on annual, quarterly, or even monthly valuations of what they hold, and on capital appreciation…and too little on immediate yield … and intrinsic worth.” If we replace Keynes’s “quarterly” and “monthly” with “daily” and “minute-by-minute,” then we have today’s world.
Patience is also required when investors are faced with an unappealing opportunity set. Many investors seem to suffer from an “action bias” – a desire to do something. However, when there is nothing to do, the best plan is usually to do nothing. Stand at the plate and wait for the fat pitch.
James is amazing. Also, I don't see many fat pitches as I survey the overall landscape. Do you?
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The Reformed Broker is a blog about financial markets and the economy. Joshua Brown is a New York City-based investment advisor for high net worth individuals, charitable foundations, retirement plans and corporations... More.