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Ode to the Chartist

July 19, 2010

Reminder to self. Read this post every two weeks or so. Pinch yourself repeatedly during the intervening week.

O dear one, but for you

I would swoon

into the apathy of mediocrity!”

                 author unknown

 

Like all value investors before me I am greatly beholden to the human inclination to look for order in chaos. From time immemorial the human species has sought answers from soothsayers, priests and shamans for those things it didn’t understand; for consolation at times of despair, for guidance at moments of decision, for explanations when the world seemed unjust. Why should we investors be different? Indeed, generally, we are not; we spend much of our time (all of our time if one goes by the blather on financial news channels) trying to divine which way the market will go, which way the economy will go and thus which way we should invest. Given the history of market soothsayers (do you know any billionaire chartists?) wouldn’t it be just easier to admit we can’t know what the market will do tomorrow or next year and accept that our lives are determined by randomness? Yet, even with all the evidence, I guess not. We’re simply not programmed to accept randomness.

I don’t know about you, but I admit I am a sucker for a good chart. Logarithmic, inflation adjusted, exponential… of a stock, bond, commodity, currency, a whole market, you name it, I am happy to peruse it intently and at length. After all, it shows where we’ve been, and, since I consider myself a reasonably intelligent guy, I just can’t help feeling that if I could just make out the pattern that’s hidden somewhere in those wigglely lines, I should be able to deduce where we’re going. Yep, believe it or not, I too am human (though my wife wouldn’t always concur). When I first pick up a good chart it is not unlike the first moments of a play when one slides oh so naturally into a state of ‘willing suspension of disbelief’. It is not a rational response. It’s simply an automatic emotional connection. I search for the secret within, unable to remember there is no secret. In another sense it’s also like dozing off after a wonderful meal and finding yourself in Aunt Jezebel’s front parlor talking to your high school sweetheart and you’re still 16 years old. WAIT, what? still sixteen years old? That’s right, pinch yourself. This is a dream! Wake up. The chart, like the dream, has no real meaning; you simply give it whatever meaning you want. It certainly isn’t going to reveal the future any more than a shaman’s bag of bones.

So why am I so pleased that charts have no prognosticating properties but so many people think they do? Well, it’s like this. If everybody practiced value investing there would be no value investing. Everybody would be buying the same undervalued companies that I’m buying, thereby bidding up prices to the levels they should have been at in the first place. So without all those chartists, CNBC journalists and market pundits I wouldn’t have an edge in the market, or, that is, my edge would be waaay smaller.

Thus, my ode to the chartists. Cheers! May they live and thrive! so that I may continue on my steadfast little value trail. A toast to randomness and human folly.

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One Comment
  1. Awesome post. I love the blog by the way. I also have a blog but I focus on Canadian equities. Keep up the good work!!

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