Willingness to look Stupid.

Shame is a very important but uncalculatable variable

If you are seeking Absolute Returns, it is mandatory to have this trait, ‘Willingness to look stupid’.

If Warren Buffett was a mutual fund manager, he would have been thrown out of his job atleast 3 (if not more) times in his career.

Lets Jacobi (invert) the above statement. Inversion is a powerful tool and it helps you in reaching some startling insights leading to amazing decisions

If you are not willing to look stupid, you will only get relative returns

Lets understand the implications of this axiom.

Ability and Willingness to look stupid is a competitive edge that differentiates Men from the Boys.

looking at this from the lens of a retail investor, Ability and Willingness to look stupid is a heuristic to differentiate a fund manager who runs his craft as a Business or a Profession.

You do not want to be associated with any one who is running it as a business, its as simple as that.

I am saying this NOT because of any high moral and ethical ground but actual historical data.

95% of Large cap fund managers (5 years) could not beat the index and 70% of smallcap managers (5 years or even 10 years) have the same fate because they are ALL relative performance chasers.

Ralph Wagner puts it most eloquently,

Investors are like zebras in lion country: They must settle for meager pickings by sticking in the middle of the herd, or seek richer rewards at the outer edge, where hungry lions lurk

Taking a cash call is also part of that “outer edge”.

Institutional imperative stops a mutual fund manager from seeking richer rewards at the outer edges. There is safety in numbers. If everyone falls 80%, your job is safe and secure Vs if you fall 20% while everyone else was up or flat.

BUT, Nothing stops us from investing in an index fund if absolute returns don’t excite us.

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