Vacation Reading

Read a very thought-provoking book flying back home today. It was part of the "little book" series and talked about investor behavior. By having this diary and my approach, I get a plus and a minus. The author says it is good to keep a diary and remind yourself why you buy (or don't buy) certain stocks. Of course he also says that you should not look at your results on a daily basis.

The thought-provoking part was about how people and investors need a story. We have to have a reason to buy our stocks. Montier (the author) talks about if a jury gets the same set of facts about a case, but in one the defense is presented in good story fashion while the prosecution is haphazard, the defense is more likely to win. And of course the reciprocal is true as well.

Here is another example: If you are told a medical treatment is 90% effective and you are told an anecdotal story of someone doing well post the treatment, 88% of the people opt for the treatment. If instead you are told a negative anecdotal story of someone who didn't do well after the treatment (still given the fact of 90% success rate), only 39% opt for the teratment!

Why is this relevant? Pretty much all our investing is done based upon "stories", some positive and some negative. And I would assert that if that anecdotal story is positive, we're more likely to buy the stock, and if it is negative, more likely to sell or not buy. And, in case you haven't noticed, many MFI stocks have negative stories associated with them. I do wonder if this bias causes those of us who pick our MFI stocks on additional research makes us actually do worse. We think we're "smart" in avoiding those with negative stories... but that is the very reason they are a good value, everyone has oversold them based upon that negative story.

Here is my chart: