Fusion 101: Investing Philosophy
Three Heads are Better Than One
Too much is presented as either or. We’re conditioned to think in black and white with an importance on being right. Yet the wisdom of fusion surrounds us. Many heads being better than one is an example of the wise lore of fusion.
The first rule of fusion investing is take what you like or modify it to suit your personality.
I posted the following on TMF the other day. Denny Schlesinger spotted a couple investing greats seeding my thoughts. “Philip Fisher used to value “scuttlebutt” and Peter Lynch used to pay attention to the shoppers in the family, wife and daughters” D.S.
I’m unsure if the point of my last post, was understood. Maybe my point was so self evident that everyone thought it a waste of time or perhaps I failed to communicate clearly. Or perhaps I was too socially incorrect for my target market. Who knows, the possibilities are endless.
I’ll try again, as I think it is an important point that I was trying to make. I replied to “I can’t see what is going to drive Walgreen’s profits and stock price upwards”
Investors too often look at things through their own eyes rather then the from the perspective of the target market. That is why I suggested asking women about their Walgreen experience. It is important to understand the target market and see things through their eyes. Women are the predominate target market for pharmacies. As I said and Denny added to with his ‘value of time’ comment, location, location, location is also of great importance for pharmacies.
In investing it is important to know your limitations and how to work around these if you absolutely can’t resist making a particular trade. My advice was not directly for the poster, who I find clear of mind and open to ideas. I imagine he is wise enough to stick to investments where he has edge, investments which are within his wheelhouse and where the potential greatly outweighs the risk. Like me, perhaps he and others here sometimes can’t resist investing outside their competence. In those instances I find it useful to get as much input from the customers and the entire value chain as possible.
Over the last few years a major addition I’ve made to my investing is asking questions. These days most stores I go into I ask questions like:
- How’s business?
- What’s selling well?
- What’s not selling?
People love being asked these questions and it can all be done during the transaction. It seems to make them happy and adds to my knowledge.
Talking to people I meet and know, I ask them about what ever they are in to. I ask kids what games are hot, what clothes are in and out, what stores, merchandise and drinks are cool. Adults are an endless source of information, I almost never encounter someone I can’t learn something from. I’ve found that everyone loves to be thought of as an expert and enjoy talking about what they’re in to. Everyone is worth listening to and if you don’t learn something from them the failing is more than likely with you.
Still reading? The larger point behind that post is multiple heads. In Fusion Investing we not only utilise techniques from multiple investment disciplines we also try to get into the head of the market, management, customers and the entire value for our largest investments. Put on as many heads as you want when investing. Don’t get me wrong, it is possible to keep it simple, to put on one head and succeed. Over time I have and will discuss many other paths, including value and growth investing, fundamental, behavioral and technical trading. Plus the importance of money management, investment timing, portfolio management and patience. Hey and you know what I’ve started trading options again, so I’ll continue to highlight the thoughts behind my trades like I did for QSII.
First and foremost – Investing takes a lot of time and if you’re not prepared to invest a serious amount of time then stop reading now and start indexing using long term timing. Buy low.
If you’re still with me INVERT. Start thinking you’re wrong, start with the downside. If a 100% loss is possible move on. Munger talks about multiple mental models, he like Buffett is totally switched on to fusion. Snowball author author Alice Schroeder on what makes Buffett special. (skip to the 6min mark). Say no to cat risk! Handicapping. Don’t dollar cost average! …You know yourself better than anyone (33:30)
Many academic papers test only one concept, e.g. does sector rotation work is studied in isolation. If investing was as simple as following one basic formula then everyone would be rich and there would be no need for Madoff like Ponzi schemes or the scores of other investing frauds. The same applies in all types of investing. There is no one technical indicator, no single fundamental metric, no one consistent behavioral setup that reliably works. If any known indicators or metrics once worked they no longer would due to use. Though saying that some individual metrics have stood the test of time as demonstrated by the likes of Dreman, and many absolutely should be incorporated in to a fusion analysis.
At the heart of Fusion Investing and Analysis is the belief that there are many right approaches you must find the path that is right for your personality. Fusion is right for me and I believe:
- A fusion of approaches improves the probability of success.
- Starting with the downside saves times and adheres to Buffett’s rules number one and two.
- Never believing you’re definitely right ensures your decisions are logical rather than emotional.
Fusion Investing is about finding the best and common stepping stones from other investing methodologies.
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