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On Farming and Investing

Six months have gone by since I passed the reins of Rathbone Warwick to the very capable hands of Ryan, Ben and Brooke.

Staying busy has not been a problem.  A highlight was spring skiing with my son, 26, and nephew, 21, at Crested Butte, Colorado.  We all had so much fun that we decided to make it an annual trip. For me to ski with 20 something rippers requires training six days a week. Busy.

I have found a new joy listening to podcasts while on the road or bicycle.  Podcasts are college level classes for free while only taking the classes which interest you the most.

One of my favorites is Econ Talk hosted by Russell Roberts.  Roberts is a Research Fellow at Stanford’s Hoover Institution and a founding member of the Library of Economics and Liberty. Roberts reads a new book each week, and interviews the author on Monday.  Some of the conversations fly over my head, but hey; this is college.

Recently Roberts interviewed Jason Zweig who writes The Intelligent Investor every Saturday for The Wall Street Journal.

Zweig’s new book, The Devil’s Financial Dictionary, is a glossary of financial terms inspired by Ambrose Bierce’s masterpiece, The Devil’s Dictionary, a collection of witticisms published more than 100 years ago. The definitions are witty, at the edge of cynicism, yet grasp hold of essential truths.

Here are a couple of definitions to give you the flavor.  First from Bierce: 

Liberty, n. One of Imagination’s most precious possessions.  

Politics, n. A strife of interests masquerading as a contest of principles. The conduct of private affairs for public advantage.

Now from Zweig in The Devil’s Financial Dictionary:

Downside Protection, n. A tactic put in place by a financial advisor to protect against whatever hurt the value of a portfolio last time. The portfolio will be hurt by something entirely different next time, however. 

Hedge Fund, n. Expensive and exclusive funds numbering in the thousands, of which only about a hundred might be run by managers talented enough to best the market with consistency and low risk. “The rest,” says the financial journalist Morgan Housel, “charge ten times the fees of mutual funds for half the performance of index funds, pay half the income-tax rates of taxi drivers, and have triple the ego of rock stars.”

In a recent podcast, Roberts engages Zweig in a great conversation on Wall Street, Psychology, Behavioral Finance and the personal qualities necessary for successful investing.

Fans of Zweig know his skepticism for Wall Street’s latest products.  Zweig was raised on a farm in Upstate New York.  There is nothing like the farm to refine one’s nose to the smell of bull manure.  I have been reflecting on my good fortune of a farm upbringing.  From my first job at age five or six, I banked my pay with a passbook account and watched the interest grow.  By age nine or ten, my brother and I had a small business buying piglets in the spring, working off the feed expense over the summer and selling them at the fair in August. Nearly fifty years later I can see the seamless connection to those early lessons. And yes, I can smell manure from a mile away.

Like Zweig, my father was an investor.  Zweig talks about the wisdom that he gained from his father who never held an investment for less than a few years and never made a decision based on the current news.  They invested without regular price information since the local paper didn’t publish stock prices and long distance phone calls were very expensive.  My family had a subscription to the Wall Street Journal, but we were also long-term investors.

Zweig and Roberts contrast those times with today’s challenge to resist acting on the unending flow of instantaneous data.  That data leads many to seek out the essential tidbit, the equation to analyze it, or the speed to out-trade it.  Those pursuits will likely be fruitless.  Zweig implores us rather to work on the qualities of humility and self-control.

The need for self-control in Zweig’s own words from the podcast: 

“As Benjamin Graham wrote in The Intelligent Investor, the investor’s biggest obstacle is likely to be himself. Actually, he said: The investor’s biggest obstacle and worst enemy is likely to be himself. And it’s so true. Because you can have well-informed principles; you can do thorough research; you can have access to the best quality information; and then, you know, you get some tip at your country club that, you know, Tesla shares are cheap and you run out and put all your money in Tesla right before it tumbles. And you let go of your self-control for that one moment; and that moment of weakness is what takes you from outperformance to underperformance. And self-control is what has made Warren Buffett and Charlie Munger, and certainly what made Benjamin Graham into great investors. But most investors spend all their time and energy sort of pursuing other objectives. Like, getting the fastest information first, or finding the best software, or using some new analytical method that nobody else had thought of. And none of those things will get you where you need to go if you do not have self-control.”

I will take you to a beautiful quote on humility from Zweig, but first back to the farm.  Farming requires humility if you want to keep from going broke.  There can be a great temptation to put all of the ground in a seed crop, but the successful farmer recognizes that a late summer hail storm could put him out of business. The farmer knows that he is dealing with uncertainty and forces of nature beyond his control.

In Jason Zweig’s words:

“If there’s one overriding theme to the book, one of the things I tried to get across in The Devil’s Financial Dictionary is the importance of just being humble before the financial markets. I mean, people are humble before nature. Think about when you stand on the brim of the Grand Canyon or you walk to the edge of the ocean or you look up at the stars. People feel this sense of awe and wonder and smallness, because we are small when we compare ourselves with the natural world. Well, individuals, and for that matter policy makers are small when we compare ourselves with the financial markets. But most of us forget that. And we think, ‘Oh, well we have better data,’ or ‘We know something the other guy doesn’t.’ And in fact we should have that same sense of just being a speck of sand on a long beach, and just remember that whatever we know is very small compared to the totality of the information that’s out there.”

I am comforted to have the overarching investment philosophy of Rathbone Warwick reinforced by these thoughtful and eloquent words.  I am also humbled.

Best regards,

Bob Rathbone Signature

Bob Rathbone