Pretty Lies

In a survey of literate financial industry professional I can more or less guarantee that the voting for McMurtry”s Lonesome Dove versus McCarthy’s Blood Meridian would fall along growth versus value ideological lines. Written in the same year, both are very, very good books, arguably the seminal achievements by each author. Only one will be read until the lights go out for good on humankind.

McMurtry’s book is a pretty lie, post-modern in the sense that its subject matter is the myth of the West rather than the history itself. The truth and accuracy, and there are considerable amounts, are woven into the myth.

Blood Meridian, on the other hand, is a poetic horror. It is devoid of heroes, building a story outwards from historical accounts of genocide. For the cynical, value-oriented reader, it also feels true.

McCarthy detractors will happily trot out numerous excerpts where his writing is almost comically overwrought. This doesn’t change my view. It is analogous to pointing out basketball games where Kobe Bryant or Larry Bird took too many shots – it doesn’t deny their greatness, just highlights its borders. In any event we’re not really here to discuss literature.

The question of the day as it applies to finance is: Is it worthwhile to know the truth?

I suspect that the eminent Steve Randy Waldman would argue that in aggregate, the benefits of investment truth are overrated. In his Why is finance so complex?, which is among my top five blog posts ever written in any field, he argues persuasively that one of the central economically-constructive tasks of the financial industry is to hide risk. Otherwise, fewer people would invest, and the entire economy would be poorer.

This notion would horrify the conventional Blood Meridian-loving value investor. What is net asset value, after all but the accounting TRUTH. What could possibly matter more?

Strict value investors almost always exist outside of the daily operations of finance. They don’t buy new issues and they don’t take pitch meetings. They are not susceptible to the “its a great story” growth stock pitches from the trade desk, so they don’t get many calls. The contact between value managers and investment banks usually takes the form of the manager asking complicated accounting questions of the analyst. As clients, since they don’t trade a lot, they are often considered more of a pain in the ass than they’re worth

They also miss out on all the fun. With rare exceptions in the severely distressed category of cigar-butt investors (Michael Price being one) there are no 10-baggers and no Laird Hamilton big wave “riding the winners” surfing episodes.

Longevity and consistency are the most obvious benefits of conservative value investing. Value funds will lose client assets during big rallies but rarely blow up. Even moderately talented value managers rarely go out of business.

But its a weird, anti-social type of victory. You are never in with the In-Crowd, not in THE GAME, with all of its incumbent go-go, chest-thumping, hand tailored suit, Master of the Universe mythology.

So who wins in this search for the truth? Is it enough to note that Lonesome Dove has outsold Blood Meridian by at least 400%?

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11 thoughts on “Pretty Lies

  1. MSNToronto says:

    Excellent commentary. Problem is clients of value investing strategies are different than value investors themselves. Patience is never around long enough to meet at the end of the journey.

  2. mercurialsoxfan says:

    They are interconnected like the yin and the yang. Those in The Game create the euphoria that leaves boring companies for dead, to be scooped up by The Value Guys. Likewise, The Value Guys know that 9 out of 10 IPOs are dogs and so they fail to buy the Google IPO which instead goes cheap to the guys in The Game.

    Doesn’t it come down to what type of strategy you can sustain? McCarthy couldn’t write Lonesome Dove even if he knew it would sell 3x better than the book he could write.

  3. [...] "The question of the day as it applies to finance is: Is it worthwhile to know the truth?"  (Interloping) [...]

  4. Greg Feirman says:

    Investment styles are to a great extent a function of personality IMO. Value investing appeals to a certain type of personality and growth/momentum another type. Geeks/Frat Boys, Outsiders/Insiders.

    Good post!

  5. [...] Why value investors are kind of “anti-social” and a “pain in the ass.”  (Interloper) [...]

  6. I am disappointed to see all the punctuation in this piece. ;)

  7. kris says:

    I always tell people, communism in eastern europe and russia was NOT imposed by the gov, it was self imposed by the people.
    It’s the same for investors, self imposed ignorance.

    Quite simple explanation: People hate reality and force themselves to believe that somebody else will provide for them.

  8. [...] Why value investors are kind of “anti-social” and a “pain in the ass.”  (Interloper) [...]

  9. Great stuff, and literature too ;-)

  10. health says:

    In all honesty this became an excellent detailed write-up even so as with every wonderful authors there are many details that may be worked upon. However by no means the significantly less it absolutely was stimulating.

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