In today’s Money Morning…don’t listen to Buffett…the maths of hate…the old guard hate this most of all…and more…
My best investing returns have come from ideas people said were ‘crazy’, ‘wrong’, and ‘stupid’ at the time.
And although these days I’m happy to stick to my guns no matter what others think, in my early career, I’d be persuaded too easily by the mainstream consensus.
Later I learned to ignore them.
Today, I use them as clues of hidden opportunity…
Don’t listen to Buffett
Afterpay Ltd [ASX:APT] is one of Australia’s most successful stocks of the past few years.
But do a quick Google search, and you’ll find the mainstream finance industry has been negative on this stock for most of its rise.
For example, an analyst at Morningstar (and I’m not picking on them as there are plenty of people you can find saying the same) wrote a note in November 2019 saying:
‘Although we continue to expect strong financed sales growth, Afterpay screens as expensive at the current price of $31.70 per share.’
Source: Bell Direct
The stock price has shot up to around $120 per share since…
I actually put out a report around the same time in late 2019 called the ‘Great Bank Unbundling’.
It explained how specialist single-use case stocks exactly like Afterpay were going to go a lot higher over the next few years, as they carved profits from the big banks.
I should stress that I didn’t pick Afterpay either (it was already too big for me), but the five investments I did recommend on this theme are up 12%, 94%, 114%, 344%, and 1,249% — over just two-odd years.
Four of these are still open positions…
Another example of ignoring consensus thought comes from none other than Warren Buffett.
If you say you disagree with Buffett everyone just thinks you’re trying to big note yourself. But the fact is he’s been a pretty mediocre investor for most of the past two decades.
He missed the boat on most of big tech’s rise including Amazon.com, Inc [NASDAQ:AMZN] — now the most valuable company in the world — ruefully telling CNBC in 2019:
‘I’d always admired Jeff. I mean, I met him 20 years ago or so, and I thought he was something special, but I didn’t realize you could go from books to what’s happened there.’
Tesla, Netflix, Apple…they’ve all been professionally hated stocks that have defied the odds.
Yep, hated investing ideas are often very fertile places to look.
Like any rule of thumb, it’s not always true, but in my experience the more hated an idea, theme, or stock, the better.
The mechanics of this actually make sense, provided of course the investment opportunity stacks up over time…
The maths of hate
This chart explains it:
Source: On Digital Marketing
You’ve probably seen a chart like this before.
The blue line shows the typical distribution of people adopting a new idea. It’s your normal bell curve with most people in the early or late majority.
That yellow line shows the benefit of being early as market share starts to accelerate.
As an investing idea goes from being hated to being loved, the sheer weight of numbers propels your investment higher.
Which brings me to one of the most hated ideas out there today…
The old guard hate this most of all
There’s nothing the professional finance class hate more than cryptocurrencies.
Check out what Warren Buffett’s long-time sidekick Charlie Munger had to say just last week at the Berkshire Hathaway annual shindig in Omaha:
An interesting line of attack from a man who has made his fortune in part by investing in distressed assets and pushing sugar to kids…
My own take is Munger probably just doesn’t understand it, so he’s lashing out.
He’s 97 years old and has no need to try and completely reconsider his world view. The way the world works right now is all good by him!
But as an investor in Berkshire Hathaway, I’d probably be more concerned by this chart than Bitcoin [BTC]:
Over the past decade, the ‘dub money’ index is completely outperforming Buffett and Munger.
Anyway, Munger isn’t the only one beating this drum right now.
Here’s our own ‘safe and solid’ Alan Kohler tweeting recently:
He assumes the price of bitcoin has gone up because everyone is ‘crazy’.
Too bad for his readers…
He’s far from alone. Nearly every single accountant, financial planner, and analyst I know still thinks cryptocurrencies are a con.
This mindset is based on nothing more than an ‘it’s not what I was taught’ gut reaction.
Unfortunately, that’s where their research ends. After all, for them it’s actually safer to be in the crowd.
And to be fair to them, it’s a huge and all-encompassing topic that touches upon the history of money, technology, politics, sociology, computer science, cryptography, and much more.
Who has time for that in between their day job (apart from me!)?
But there’s a cost to this for anyone who listens to them.
Because the old guard of finance are completely missing the biggest change in the financial system in five decades.
While they’re busy trying to play by the old rules, they’re missing the fact that the game is changing.
As crazy as it sounds, money itself is changing.
You can probably feel it yourself in the strange way markets are behaving. Zero interest rates for savers, constant money printing, asset bubbles without end…there’s something not right.
What does that mean for your investing strategy?
It’s a big topic no doubt, but in my opinion there’s nothing more important to discuss right now.
Lashing out because you don’t understand it or putting your head in the sand isn’t good enough.
We’ll explain why money is changing and what comes next.
Editor, Money Morning