My perception of Aswath Damodaran changed considerable the other day after reading his negative thoughts on George Soros. I have learnt and will continue to learn a lot from Professor Damodaran, but I now realise he also has a lot to learn if he wishes to become a more rounded intelligent human who accepts and admires our differences. We don’t all fit into the same box and the world would be a bloody boring place if we did.

I have always enjoyed the writing of Soros, his thoughts on reflexivity are fascinating, his big picture thinking and philanthropy are things that I admire. Soros has done incredibly well in the markets over many decades due in part to his variant perception. He is a master at seeing what others do not and at using the markets to shape the future.

Before I go on, here is my sons portrait of my partner that I promised. She is serving his favourite meal of lasagne, while he licks his lips with knife and fork ready. The irony is he pictures me at the computer while I cook 70% of the meals, make his lunch and afternoon tea, wash his clothes etc. Apparently my son is already a master of variant perception! I know his perception is distorted, but if I am to be a more successful father that doesn’t mater.

Variant Perception is a concept that I was recently reminded of by this post. The thread is worth reading as an interesting discussion on intrinsic value. The poster succinctly captured my market philosophy: “To me, investing is just about finding the biggest delta between market expectations and what you think is more likely, basically Steindhart’s variant perception”

For those who don’t know, Michael Steinhardt wrote No Bull: My Life In and Out of Markets after beating the socks off the market with 24% annual compounded returns for 28 years from 1967.

I have yet to read the book, but a keyconcept is summed up by this quote.

“I constructed a system that overcame the necessity of specific knowledge across a wide range of industries. In short, I asked the right questions by seeking the ‘variant perception’ inherent in each idea.

A summer intern reminded me years later of the advice I had given him on his first day at work. I told him that ideally he should be able to tell me, in two minutes, four things:

1) the idea
2) the consensus view
3) his variant perception, and
4) a trigger event.

No mean feat. In those instances where there was no variant perception – that is, solid growth recommendations within consensus – I generally had no interest and would discourage investing.”

There is a natural conflict between Reflexivity and Variant Perception. If the markets help shape the future and variant perception aims to find the variant to the market’s perception then it is essential not to step in the path of the market when it has a strong influence on outcome. Washington Mutual comes readily to my mind.

No related posts.