This blog promises essays on the discipline of investing, occasionally straying outside the borders of conventionalism. Its underlying sentiment is to prescribe a rigorous perceptual framework through which to view the past and present, and discover what it may portend for the future. For the absolute return value investor, thinking must challenge the prescriptions of doctrine and dogma that so define the opinion of the majority.
What is it that characterizes the thinker? First of all, and obviously, vision. . . . The thinker is pre-eminently a man who sees where others do not. The novelty of what he says, its character as a sort of revelation, the charm that attaches to it, all come from the fact that he sees. He seems to be head and shoulders above the crowd, or to be walking on the ridge-way while others trudge at the bottom. Independence is the word which describes the moral aspect of this capacity for vision. Nothing is more striking than the absence of intellectual independence in most human beings: They conform in opinion, as they do in manners, and are perfectly content with repeating formulas. While they do so, the thinker calmly looks around, giving full play to his mental freedom. He may agree with the consensus known as public opinion, but it will not be because it is a universal opinion. Even the sacrosanct thing called plain commonsense is not enough to intimidate him into conformity. What could seem nearer to insanity, in the sixteenth century, than the denial of the fact—for it was a fact—that the sun revolves around the earth? Galileo did not mind: his intellectual bravery should be even more surprising to us than his physical courage. . . . Einstein’s denial of the principle that two parallels can never meet is another stupendous proof of intellectual independence.
You may well have surmised that the above is neither original nor autobiographical! The quotation was extracted from The Art of Thinking by Ernest Dimnet, a volume first published in 1928. It achieved relative popularity, selling 110,000 copies by the end of 1929. Its message of intellectual independence was antithetical to the madding crowd conformity emblematic of the Roaring ’20s. Despite its poignant relevance to the business of investing and the protection of capital in perilous times, however, its advice went unheeded in financial circles and received as unceremonious a welcome as the proverbial skunk at the garden party. Ironically, a fresh edition was released in May of this year. I expect a similar reception. An apropos modifier in the title of this latest edition would be the adjective “Lost” before “Art.” British philosopher Bertrand Russell summed up rather well the inertia that Dimnet’s entreaty simply could not overcome: “Most men would rather die than think. Many do.”
Even though what is written here will, in many instances, fall on deaf ears, that alone is insufficient reason to leave it unsaid. I am among those who believe that repetition is the mother of all learning. In the first edition of The Intelligent Investor published in 1949, the “Dean of Wall Street,” Benjamin Graham, singled out 1925 (not the more fortuitous years of 1926–29) as the year a thinker must have freed himself from the allure of the crowd. He warned of an impending danger, irrespective of offering any specificity as to when, like a thief in the night, it might appear:
It is worth pointing out that assuredly no more than one out of 100 who stayed in the market after 1925 emerged from it with a net profit and that the speculative losses taken were appalling.
In 2014, I argued in an essay entitled “Why 1925?” that the thinker must seek out intellectual and financial safe havens well before speculative contagion becomes a speculative epidemic. Dimnet’s first edition, though timely in the context of history, was pathetically late to be of any value at the peak of the insanity. Though the current episode is of a more muted and subtle timbre, it is no less a threat. The latest edition of The Art of Thinking is doomed to the fate of the first. If the odds of surviving this cycle would increase to 2 out of 100, then this post will have been worthwhile.