Money

Investing with the ‘Wisdom of Crowds’

Investors are forever on the hunt for the “Holy Grail” of investing — a strategy that consistently outperforms the stock market through thick and thin.

Some investors swear by value investing. These folks believe that you make your money when you buy a stock rather than when you sell it. Consistent tortoise-like returns trump flash-in-the-pan double-digit percentage gains over time.

Other investors swear on the alluring prospects of “exponential growth.” They count on the stellar returns of a well-timed — and lucky — bet on the “next Google” that will be responsible for the next generation of billionaires.

Traders are more technically oriented momentum players who surf the markets much like a surfer rides the waves of an ocean. They react more to the opportunities the market has to offer at the moment rather than following the strict, almost religious tenets of a particular investment philosophy.

Investment ‘Hedgehogs’ versus ‘Foxes’

I envy those who have a single rigid philosophy — the “hedgehogs” of the investment world. After all, they have it easy. Ask them any question, and they always give the same answer, no matter what.

Hedgehogs are investors who know one thing — and they know it well. A hedgehog will tell you that the “holy grail” of investing is to “buy gold” (Peter Schiff)… or to “buy China” (Jim Rogers)…or to… “buy index funds” (John Bogle).

For Hedgehogs, it is their way or the highway. Those who fail to see the light are just part of the ignorant “great unwashed.” In short, hedgehogs are the ideologues of the investment world.

In contrast, when a “Fox” looks at the world, he sees it as complex and changing — a dynamic game of three-dimensional chess, a puzzle to be solved.

Believing that there are no easy answers to complex questions, foxes pray no more at the altar of Warren Buffett than they do at the feet of George Soros.

Although foxes are often wrong, studies have confirmed that foxes are wrong less often than hedgehogs who provide simple answers.

Enter ‘The Wisdom of Crowds’

Like a real fox, I believe that every investment strategy has its day and that those days come and go. I also believe successful investing is more about incorporating diverse viewpoints at different times to eke out a relatively small edge rather than having the ability to give an answer to an investing question before you even ask it.

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