Maybe we need to change the way we think. We have so many things to worry about right now. Will the economy bounce back sharply or will Covid win again? How long will the Fed’s stimulus last? And which sectors will lead the market? The tried-and-true giant media and e-commerce companies (Facebook, Amazon, Netflix, Google, Microsoft, etc.)? The hot new IPOs with no sales but with the promise of wealth beyond the dreams of avarice? Or the forgotten Value stocks with their cheap prices but decidedly unsexy businesses?
If history is any indication, we will shift into hyperdrive to work on these problems. We will read more, take more work home at night, and pore over even more corporate reports. In effect, we use the left hemisphere of our brain. Wall Street is dominated by left brain experts, brilliant people who excel at analysis and number crunching. But the problem is we miss the big picture if we jump too quickly to the details. When change occurs it can’t be measured until after the fact. The left brain doesn’t help us here.
What we need to do is listen more to our right brain, the visual, intuitive, sensing part of the brain that often leads us to “aha” moments. Here is an example: Berkshire Hathaway bought all of the railroad Burlington Northern (BNSF) in 2009. I don’t think Mr. Buffett looked primarily at recent car loading numbers or profit margins to make his decision. I think he used his right brain to come up with three simple facts. First, railroads are the cheapest way to move lots of goods across the country, and will continue to be. Second, BNSF is one of the two dominant railroads and third, we are not going to build any more railroads in the U.S. Just ain’t going to happen – – too complicated, too expensive. You didn’t need elaborate reports and spreadsheets to see this, just vision, intuition, and a gut feeling. Why didn’t I think of that!
Joel Greenblatt, the NYU professor and Wall Street author has said — and Seth Klarman, the ultra-successful hedge fund manager in Boston and Warren Buffett would agree: “The secret to success in investing is to figure out the value of something and then pay a lot less.” As simple as that! Except…how do you figure the value of something? You can crunch the numbers all day but many of your inputs are at best, just guesses. A better strategy is to treat the right side of your brain, your intuition, as an equal partner to your left side, the logic side. A better chance to anticipate change rather than reacting to it.
“Whole brain investing” is a little like starting with a “beginner’s mind.” Get rid of your preconceptions, think like a novice again, start with an “uncarved block.” This won’t guarantee success but it might help you stumble upon more of those “aha” ideas.
