"Wired" vs "Hard-Wired" and the Personal Portfolio

Allegory of Fortune, Godfried Schalcken, 1680s, oil on canvas

I had the pleasure of going to the Markel meeting last week (hence the more sporadic publishing lately). I don’t know who else feels this way, but there is something incredibly reinvigorating about spending time around people who love to talk about investing. For many of us, our circles of friends and family probably aren’t as into investing as we are, so the depth of investing topics tends to feel superficial.

But get a dozen value investors in the room, and suddenly, you can talk about the capital allocation priorities of a trash-hauling service company without watching the eyes of the people in your conversation group glazing over.

I asked a few people what they thought it would take to get more investors, especially newer ones, to use value-investing principles. There was a common answer.

“You can’t. People are just wired this way”

I can see why people with a value-investing bent would think this way. Value-investing usually means eschewing shiny objects. Anything receiving favorable attention from financial media or retail investors probably means it’s overvalued.

As someone who tries to keep a foot in other investing camps, I found this answer unsatisfactory.

For one, I don’t think that one investing method is inherently superior to the other. Each respective investing tribe —value, growth, dividend, etc.—has plenty of examples of their method generating excellent returns. Each group also has a stable of academic research showing how its method generates superior returns.

All of them are correct in their own way. Yes, growth investing can generate superior returns because a chosen few within a portfolio will likely generate such monstrous returns that it offsets the pile of duds. Value investors will likely have a higher batting average, but you’re less likely to find multi-baggers among the companies trading for 75% of their tangible book value. Anyone who believes that their method of investing is the only way to generate good returns is doing themselves a disservice.

The other dissatisfying aspect of the “it’s how we’re wired” approach is that this dogmatic approach can indulge the worst tendencies of an investor archetype. At its worst, value investing will be willing to buy dogshit at a discount if the discount sign shines bright enough. Similarly, a large total addressable market can sweep a growth investor off their feet, even if dozens of companies with no discreet competitive advantage attack that market. And don’t get me started on the “income investors” that swoon over every double-digit yield six weeks away from a payout cut.

There’s a difference between having the wiring to use an investing style as a tool for finding superior returns; it’s another to be hard-wired such that it is the only lens through which you can view the market.

And now the personal portfolio