Let me tell you a story about two farmers.
Farmer Browne and Ol' MacDonald grew up together in a village in medieval England. They were subject to the same lord, they went to the same church, and they had the same bad haircut. When they came of age, each set off in his ox cart to find a farm of his own. Browne happened to settle beside a growing market town. MacDonald ended up settling thirty miles away, along the coast. Neither made a deliberate choice… the land happened to be available and the rent was fair.
(Any resemblance to my co-portfolio manager, Connor Browne, is entirely intentional. I gave myself the ocean view and fewer neighbors come plague season.)
Then came the good years (for Browne, anyway). The town grew, and every new mouth bought Browne's oats. He sold everything he could grow, at prices that rose each season.
On the coast, however, ships arrived loaded with cheap grain from other parts of the kingdom and across the Channel. MacDonald was forced to sell his crop for a little less each year. Browne saved enough to buy his land. MacDonald kept renting.
New settlers followed. In town, they were Browne's customers and hired hands. On the coast, they competed for the same limited farmland, and MacDonald’s rent went up.
Years later, the two friends ran into each other at the village fair. They found a bench, split a jug of ale, and for about ten minutes it was like no time had passed. Then the conversation turned to the kingdom.
Browne thought things had never been better. The ships brought spices and cloth he could finally afford. The newcomers were hardworking folk, and the town was livelier for having them. If anything, the king should encourage more trade and welcome more settlers.
MacDonald nearly dropped his ale. Those ships were ruining honest farmers! Those newcomers had doubled his rent. If anything, the king should restrict foreign grain and turn the settlers away.
Each man headed home that night shaking his head. Browne wondered when his old friend had become so bitter and suspicious. MacDonald wondered when his old friend had become so smug and out of touch.
But neither man had changed… it was their environments that had.
Browne lived in a world of abundance, where a stranger was a customer and a ship was a bargain. MacDonald lived in a world of scarcity, where a stranger was a rival and a ship was a threat.
The same forces that made Browne richer made MacDonald poorer. Abundance produces one rational set of preferences. Scarcity produces another.
And the king had a real problem: He could only write one set of laws, and he had two very different worlds thirty miles apart.
I think about these two a lot lately.
When I can’t understand someone’s viewpoint, I try to ask: what would the world have to look like for that view to make sense? Usually, the answer is a world that already exists, about thirty miles from mine.
I try to bring that same habit of mind to investing. Every time we buy a stock, someone on the other side is selling it, and that person is rarely a fool. Our best work starts with figuring out what they see that we don't. Sometimes their assumptions are wrong; sometimes ours are. Understanding the other side doesn’t mean agreeing with it. But if we can’t explain why a thoughtful investor might reach the opposite conclusion, we probably don’t understand our own investment well enough.
So, whether we’re following the midterm elections, sitting at Thanksgiving dinner, or evaluating our next investment idea, Connor and I will try to remember Farmer Browne and Ol' MacDonald and spend a little more time looking at the world from the other farmer’s field.
IMPORTANT DISCLOSURES
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