"The greatest blessings come by way of madness." -- Socrates on the Oracle of Delphi
The focus on recent headlines and worries
about the Fiscal Cliff has distracted investors away from the factors critical
to long term investment success. We are content to leave the predictions
to others and instead spend our time trying to find value-priced companies that
have the potential to grow substantially over time, thereby unlocking the
powerful force of compounding.
I recently had
the privilege of traveling to one of the most important sites of the ancient
world: The Temple of Apollo at Delphi. Delphi was the longtime home
of the priestess of Apollo, an Oracle who was believed to be able to predict
the future based on her ability to communicate directly with the Greek Gods.
The Oracle's prominence began to grow immensely sometime around 800 BC
and held steady for over 1,000 years ending only with the fall of the Roman
Empire. Citizens from all over the Mediterranean made the long and
difficult journey through the mountains simply to seek the Oracle's divine
prophecies. In fact, many of the best known figures of the period (such
as Alexander the Great, Cicero, and the Roman Emperor Hadrian) based their
decisions for war and politics on her responses to their questions. The
Oracle's prophecies were widely credited as being highly accurate, which is
reflected in the incredibly vast store of wealth that was accumulated by the
temple (satisfied visitors were expected to make significant donations and
gifts). In many ways, the Oracle can be said to have started the first,
and perhaps most enduring, global consultancy.*
So what does the
story of the Delphic Oracle have to do with investing? When I was touring
the site, I couldn't help but think that it speaks to a core element of human
behavior. We all would like to be able to know the future before making
decisions regarding inherently uncertain events. This dynamic is perhaps
strongest in today's investment world which is obsessed with predicting the
future and constantly in search of modern day Oracles. CNBC interviews
filled with questions about the course of short term events illustrate this
quite well with common questions along the lines of, "How will the Greek
Parliament vote?", "Where is the price of Gold headed this
week?", and our recent favorite, "How are you positioned for the
Fiscal Cliff?". This tendency has helped create a
headline-focused trading culture built on the mistaken belief that investing is
a predictioneer's game--that those who can most accurately predict the outcome
of headline events perform the best.** The end result is that many
investors:
- Spend
considerable time trying to predict headlines
- View
their portfolio in the context of recent news (shows such as Fast Money
and Options Action are indicative of this mindset)
- Trade
incessantly, holding securities for increasingly short periods of time
(the current average holding period of a stock is now only 3.2 months)
- Engage
in herd-like behavior, crowding in and out of the popular stocks and
industries of the moment
- Spend
little time examining fundamentals and the underlying value of businesses
The most
successful investor of our time has been dubbed the "Oracle of Omaha"
by the media. This title strikes us as particularly ironic given Mr.
Buffett's well articulated philosophy of generally avoiding
predictions. That doesn't stop people from asking him to predict the
future, though, and the most recent Berkshire shareholders' meeting was
filled with questions about recent headlines. His response: "In
53 years, Charlie and I have never had a discussion about buying or selling in
which we talked about macro affairs." Indeed, Buffet has
repeatedly advised investors to "stop trying to predict the direction of
the stock market, the economy, interest rates or elections." This
sage advice has not been heeded by the masses. It is clear to
us that Buffet's success has had almost nothing to do with his ability to
predict the outcomes of events. Instead, it has been a direct result of
his behavioral investment philosophy combined with a keen analytical
ability to value businesses and buy them at prices which offer significant
value--something we attempt to do on behalf of our investors each day.
*As a footnote, an interesting question is
how the Delphic Oracle held prominence for over 1,000 years while being engaged
in such a difficult activity as predicting the future? With the benefit
of history, we now know that the Oracle had a secret. Upon reaching the
large Temple, guests would be lead to a small chamber, the Adyton, where the Oracle
(typically a young woman) would receive guests while sitting on a tripod over a
smoky vent. Upon hearing a question, she is said to have become
hysterical and begin to speak in "incomprehensible tongue" which was
explained to come straight from Apollo. Male priests would interpret her
rantings and write a short, one or two sentence prophecy. Research now
indicates that her erratic behavior was due to the fact that the vent emitted a
natural hallucinogenic gas. While it is incredible to think that ancient
visitors would give credence to the rantings of a drug induced teenaged girl,
her behavior would have been something most visitors had never seen before,
making the experience more believable. The real power of the Oracle
resided in the Priests who actually wrote down the predictions. It is
believed that the priests were great scholars who turned Delphi into a large
information gathering center (a powerful tool in an ancient world where
information was scarce). They were able to research questions beforehand
and dispense appropriate wisdom and advice. For uncertain events (such
as, "Will my unborn child be a boy or a girl?"), there was more
gamesmanship, and the Oracle is famous for delivering prophecies which
could be interpreted as being correct regardless of the outcome (the answer:
the double entendre, "A boy not, a girl.").
