Last evening the Discovery Channel had a wonderful program about Killer Bees and explained why it is that they eventually dominate their European counterparts when the two inhabit the same area. The program had some nice shots of the famous "bee dance" where the scouts had returned from a prospective nest site to do their exciting dances to describe the merits of the potential site. It all reminded me of the scientific experiment where nectar was placed vertically above a hive and the bee who found it was not genetically equipped to describe this unnatural location. Munger calls it the Twaddle Tendency and in Poor Charlie's Almanac describes how it's best to get those who don't matter off the team due to their incoherent and useless babble. Become a Complete Fool
It occurred to me that what we're seeing today is a very large scientific experiment where the investment equivalent of nectar has been placed above our heads or in this case "high" above the norm. No one has ever seen conditions such as this (Never in my life says Munger) where every asset class is high. The result is predictable if you subscribe to Munger's Twaddle tendency � we witness a never-ending stream of incoherent babble dances from our "scouts" who return to us with their attempts to describe what to do in this uncharted environment. Just yesterday I had a Twaddle Bee trying to excitedly tell me about the 'can't lose' nature of real estate � arms thrashing about, excited talk, excited gestures � no different than our confused, genetically ill-equipped little bee. A quick view of investment talk shows will show the same. Cramer is screaming at me to buy housing stocks in that excited little bee dance he does and at the same time I pick up a copy of Barrons this week (a very, very good issue BTW) and I see that housing could drop 50%. There are many, many conflicting and confusing little dances going on at the front of my hive these days. You've no doubt heard them all � commodities are at their zenith and are due to have a major correction. No they're not! Oil is headed for $65 per barrel. The economy is going gangbusters. Ahhhh but there's extreme danger just around the corner as corporate profits are sure to decline. Bill Miller bets his fund on a robust economy. Warren Buffett has battened down the hatches. Which bee am I to believe? It doesn't matter says another bee � it's a stock picker's environment. The end result is just like the front of the hive on last night's show, we all have a lot of bees doing a lot of dancing at the front of our hives. And the market goes flat which means both the longs and shorts make no money. The dances tend to be incoherent which as beautifully displayed on last evening's show ultimately leads to chaos in the hive and a complete breakdown of their hierarchy and social order...I have no proof of course but I'd be willing to bet that many investors are doing a lot more trading than what they typically do. As they search for confirming evidence to justify a buy they get nothing but confliction and mental chaos. Where does this all leave us?
This week's Fortune magazine had what I think is a brilliant theme on decision-making with Jim Collins describing what to do on tough calls. I would strongly encourage anyone who doesn't already subscribe to pick up a copy (there is also a nice plug for Poor Charlie's Almanac!). I'm going to retype a piece of what Collins said because it goes to the core of what I think is eminently important right now.
"We tend to think that decisions are very much about 'what.' But when I look at my research notes and I look at interview transcripts from the executives we've interviewed, one theme that comes through is that their greatest decisions were not 'what' but 'who.' They were people decisions...fundamentally the world is uncertain. Decisions are about the future and your place in the future when that future is uncertain. So what is the key thing you can do to prepare for that uncertainty? You can have the right people with you."
So I take the incoherent bee dance and juxtapose it on top of what Collins is saying � it goes to everything I've learned. I once asked my commander why we're doing all this "crap" whose purpose I could not fathom. He took me aside and said that the reason was to evaluate your people. "You find out who your warriors are � who's going to have your back if things get tough and who you can count on. Take a good look around you, over there for example, you're seeing winners and you're seeing losers. You can't predict the future son, but I'll tell you this � you get the right people and they will figure it out." I take a lot from that little lesson because it's rung true countless times.
Now fast-forward to today's investment landscape � it's no different than the above. When we invest capital for the most part we're betting on people. I think it's largely why Buffett and Munger hold such disdain for things like commodities � commodities don't have people. So who are the people that you're going to align yourself with during these very, very confusing and uncertain times? The future is certainly a murky and scary place these days. It is rife with uncertainty. In this regard I firmly agree with and endorse the research done by Collins. It's times like this especially where it's best to get on the bus with good people. Take a look at your portfolio and figure out what size bet you're making on certain people. I find it fascinating that Buffett is essentially cleansing Berkshire of those who don't measure up. He didn't HAVE to send Munger-Tolles rifling through the ranks of General Re � but he did. They are uncovering everything. It's no different than what one does prior to going into a combat zone. If you're found wanting or can't be trusted you're off the bus. Given that light, it doesn't much matter how many bees do their twaddle at the front of my hive � most all of them are off my team.
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Last evening the Discovery Channel had a wonderful program about Killer Bees and explained why it is that they eventually dominate their European counterparts when the two inhabit the same area. The program had some nice shots of the famous "bee dance" where the scouts had returned from a prospective nest site to do their exciting dances to describe the merits of the potential site. It all reminded me of the scientific experiment where nectar was placed vertically above a hive and the bee who found it was not genetically equipped to describe this unnatural location. Munger calls it the Twaddle Tendency and in Poor Charlie's Almanac describes how it's best to get those who don't matter off the team due to their incoherent and useless babble.
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