In 2011 the first technology stock that Warren Buffett invested in was IBM (Buffett doesn’t invest in Microsoft because of his friendship with Bill Gates). IBM’s motto is “Think”, and it proves that motto every year by developing more patents than any other company – last year over 9000 new ideas were patented by IBM.
In the 1960s and 70's it was said that nobody got fired for choosing an IBM mainframe computer. There was security in knowing that if you chose IBM, you were making a great decision that many other people had made. Your goal was most likely very similar to everyone else who had chosen an IBM mainframe (certainty, good service, reliability etc) and there was not really any need to think about it too much. It was a self-perpetuating belief.Investors are similar. Retail investors often stick to what has done well and fund managers mostly hug the index. One of the strongest trends in recent times has been the move to index funds. Investors in their droves have been investing in this method to the extent that for the first time in history, a significant number of market participants don’t care about the price. At one point last year Vanguard the largest index manager in the world, was taking in over USD 1 billion per day.
Think again
I have always believed that the best investors are often quite contrarian. They go against the flow and they challenge “Group Think”.
The best way to know what you want from your investments isn’t to just think, but rather to think for yourself. It’s fine to run with the herd but be aware that you are also removing the opportunities that thinking differently can deliver.
In 2012 the year after Buffett had bought $10.5B in stock, IBM was named by the Interbrand group to be the second most successful brand in the world. By 2018 Berkshire Hathaway had sold down 95% of its holdings in IBM and the biggest brand in the world was Apple, whose motto was, “Think Different”. Perhaps you should too.
It’s a fine line
Choosing to go with the crowd is a very common and a very human decision. There is safety in numbers and it often works. But strangely human beings will still embrace the crowd even if it is to their detriment… as long as they think no one else is doing better.
Studies have shown that the definition of ‘poverty’ is changing to ‘relative deprivation’. The argument is that people would prefer to be poorer in absolutely terms, (as long as they aren’t poorer relative to others), rather than richer (in absolute terms) but not as rich as others. And believe it or not, some economic policies are aiming to achieve equality rather than relief from poverty. That, to me, seems crazy and investing purely on relative terms, equally so.
There must always be some element of individuality when making financial decisions. It must reflect what you want from your life and investment decisions should be made on serious and individual thought.Companies that have survived and thrived have reinvented themselves. No strategy should be seen as permanent. It requires constant modification and assessment
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