Readers with small children will almost certainly be aware of Peppa Pig – the billion-dollar cartoon franchise, whose porcine protagonist remains continually convinced the event she has just experienced has been the best birthday/holiday/Christmas/whatever … ever. I was reminded of this perky, if overly optimistic, attitude the other day as I shared a conference platform with three other fund managers.
Each of them went on to enthuse how they were invested in wonderful businesses, operating in wonderful industries and blessed with wonderful management teams, wonderful balance sheets and wonderful growth prospects. What is more, they stressed, at no point do they feel they overpay for these wonderful investments. Peppa would certainly have approved of their perky, if overly optimistic, worldview.
As you might imagine, however, here on The Value Perspective, we do not approve. Furthermore, we feel a good deal of sympathy for any investors who have been sold these ‘best investment ever’ narratives. Sooner or later they are going to discover that while such stories may sound, well, wonderful, they are just too good to be true. Life does not work like that.
In reality, anything that is worth doing involves hard work. If you want to pass an exam, you put in the hours revising. If you want to get fit, you put in the hours in the gym. If you want to learn to play an instrument, you put in the hours practising. Why would making money from the stockmarket be any different? If you want to perform better than other investors you cannot simply buy the best stocks that everyone else likes – some sort of sacrifice is necessary.
Here on The Value Perspective, our process is very clear about the sacrifices we need to make in seeking to generate outperformance. We have to be prepared to buy businesses other people hate – to scour the junkyards of the stockmarket for assets that can be patched up while passing on what has been totalled. Unmoved by ‘the best investments ever’, we do not seek out good news but instead look for where the bad news has been.
To invest otherwise is denial, plain and simple – like visiting doctor after doctor until you find one who says you are not ill. Or following the example of a friend of mine, who ahead of a weekend in Barcelona kept checking weather forecasts until he finally found one that said it would be sunny. He packed accordingly – a T-shirt and shorts – and spent the whole time drenched and shivering.
Probably not his best weekend ever, then. So while Peppa’s take on life may work out just fine if you are a small and upbeat cartoon pig, in the real world it is unlikely to result in a happy ending– particularly when it comes to investment.