THINKING OUT LOUD

Absolute investors are not Mavericks

by Rob Zdravevski

October 25, 2018

 

Asset management firms sometimes report their philosophy or results in either “absolute” or “relative” terms.

I have never been a fan of the relative investing thesis. This is where a firm suggests that they did better or “less worse” than their chosen market index or benchmark.

My preference is to be an absolute investor, where investments are made with a clear view about the risk being taking versus the reward sought, without pressure or influence of what the peers are doing.

In other words, absolute investors don’t seek the comfort and warmth of the consensus.

Relative investors tend to stay close to the herd, so that they don’t make a wrong step. They figure, if they all hug (the index), they will all keep their jobs and perks intact, whilst numbing their clients into the acceptance of mediocrity.

The unquantifiable assessment, and I need to emphasise the subjectivity behind this, is that when you are an absolute investor, that while you are sitting in cash (which may be the correct thing to do at the time) or your decision to sell shares before the declined 20% (for you deemed them to be expensive or fully valued) isn’t reflected in your investing performance today.

Nor is your stance of being patient, looking for bargains or waiting for specific investments to mature.

In a world which appreciates the ability of “measuring that which can be measured”, in my world running with the herd every day in race where you need to be compared constantly, is not healthy for your wealth.