Bill Nygren: Strong Opinions Weakly HeldThe Acquirer's Multiple
In his recent Q4 2020 Market Commentary, Bill Nygren discussed his review of 2020, the rise of Barstool Sports’ Dave Portnoy as the new market guru, his sum-of-the-parts valuation of Facebook, and how value investors can benefit from ‘strong opinions weakly held’. Here’s an excerpt from the commentary:
Unlike many value investors, I believe I learn more from reading about successful growth managers, hedge fund managers and commodity traders than I do from reading more about other value managers. If you’re going to read one book on investing, read about Warren Buffett. But if you’re going to read 10, why read 10 about the same person or even about people who all invest like him?
Long-time readers know that I’m a fan of Jack Schwager’s book, Market Wizards (1989), which covers 17 successful investors with very different strategies. I find it interesting that regardless of their strategies—whether day trader or long-term investor, whether focused on fundamental or technical analysis—the most successful investors stress the importance of a disciplined strategy, knowing themselves, controlling emotions, having conviction and admitting mistakes early.
In November, Schwager released the latest in his “Wizards” series, Unknown Market Wizards. Like the original, this book contains interviews with successful investors who all act very differently than we do at Oakmark. I found the interview with commodity trader Peter Brandt most interesting. Brandt uses technical analysis to predict commodity price movements over the next two to six months. What could that possibly have in common with Oakmark?
Brandt cites the importance of having “strong opinions weakly held” (also a popular Silicon Valley mantra). You might be saying, “Wait, that sounds like a contradiction.” The very act of investing requires strong opinions. When you make an investment, you are asserting that your estimate of the proper price is better than the consensus opinion of all other investors. But why should that opinion be “weakly held?”
Because there is a good chance you are wrong and the faster you correct your mistake, the less it is likely to cost you. Psychology makes it difficult to stay receptive to new information, especially when that information runs counter to your thesis. Yet overcoming this resistance to non-confirming information is essential to investment success.
So, what are the strong opinions that we hold weakly today? As value investors, we are used to believing that the world will return to “normal” faster than is implied by stock prices. That is especially true now, when everyone has an opinion about which 2020 changes will become permanent.
With most health experts saying that all of us who want to get vaccinated will have that opportunity by midyear, the constraints on normal behavior should soon be lifted. So what will the “new normal” look like? Some of the pandemic changes have led to real improvements—think of the transition to “touchless” everything, from doors to faucets to toilets to elevators. Why would we want to turn back from these changes? But apart from improvements like these, we think the new normal will be a lot like the old normal.
You can read the entire commentary here:
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