When my three daughters were little, they loved Easter egg hunts. As I’m sure many of you also do, we’d put candy in plastic Easter eggs and hide them around the house. My high-energy oldest daughter would run from room to room, trying to find easy-to-spot eggs before her sisters. My methodical middle child would pick a room and look in every nook and cranny. Both of these were good strategies.
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My youngest would follow one of her sisters around, looking wherever that older sister did. This… wasn’t a good strategy.
If you want a lot of candy, many strategies can work… as long as they’re different. The same is true for investing.
Within investing, independent thinking is crucial. If you look at most great investors, you will notice that they are perfectly comfortable diverging from the crowd — taking a view opposed to mainstream thought. This is where outperformance comes from — finding opportunities where the crowd is wrong (or misguided) and having the confidence and conviction to act.
In other areas of our financial life, most of us are comfortable acting differently than the crowd. If we are shopping for a great deal on a winter coat, we would check the clearance rack at the back of the store while others are doing their spring shopping. If we were looking for a new house, we’d rush to buy the underpriced house that just hit the market before anyone else has seen it. These smart approaches in other parts of our financial lives don’t always carry over to our investment decisions, though.
For some reason, when it comes to investing, we feel the urge to act the same as everyone else — to follow the herd. We are all talking about the same stocks, thinking about the same investment themes. It’s unlikely this is where we will find the great bargain or breakthrough idea.
At City Different Investments, the first step in our investment process is to actively seek out investment ideas overlooked or underestimated by others — stocks that are ignored or misunderstood. The eclectic collection of stocks that make up our portfolios seems more likely to be mispriced than the mainstream stocks everyone else is looking at.
Whether it’s investing or Easter egg hunts, a successful strategy needs a key element — to be different! Just like the coat on the clearance rack, the great investment deals are where others aren’t looking. We do it in other areas of our financial life; we should be doing it with our investments as well.
IMPORTANT DISCLOSURES
The views and opinions expressed by individuals are their own and not the views or opinions of their employer. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.