Notes, Views, and the Occasional Provocation November / December 2009  

As we hurtle to the end of the first decade of a new millennium, we pause for a moment to consider lessons that the worldwide Slow Movement holds for successful long-term investing.

May you have a long, slow relaxing holiday and a Happy New Year!

Warm regards,

Milo Benningfield


 
Slow Investing
Markets move at warp speed; long-term investors should not. more

From the BFA Blog
Highlights from our blog at http://www.benningfieldadvisors.com/blog/. more

BFA Media Quotes
Recent media quotes. more





Slow Investing
In today's wired, always-on world, the cult of speed rules. Fast cars, faster computers, and, of course, fast food, even when purchased at the grocery store.

In response, meet the Slow Movement. It started over two decades ago with "slow food" – in Italy, of course – as a reaction against the opening of a McDonald's restaurant near the Spanish Steps in Rome. Since then, the movement has spread to everything from industrial design, travel, and art, encouraging us to take our time, appreciate, and deliberate, both to create a more enjoyable experience and to make better decisions for ourselves. As the Slow Society's website puts it, "Wise decision making presupposes time and space for dialogue and reflection."1

The Slow Movement distinguishes between "slow" and "fast" knowledge, drawing upon David Orr's book, "The Nature of Design: Ecology, Culture, and Human Intention" (2002, Oxford University Press US). The world of fast knowledge emphasizes data that can be measured and modeled and believes that more data is better. The world of slow knowledge is less quantitative, more intuitive, and believes that beyond a certain point, adding more data actually obscures understanding.

Writing in the Atlantic, Stanford University medical professor Abraham Verghese recently applied these concepts to the medical profession, stating that fast knowledge:

  • Celebrates lab tests, imaging, consultations and the more the merrier–you can never have too many tests or images.
  • It suggests that what counts are only the things one can measure (and counts more than the patient's or the family's subjective observations and their verbal reports).
  • It presumes that an error made from misinterpreting the existing data can be overcome with even more data . . . .
Slow knowledge by contrast has a different purpose:
  • It celebrates wisdom more than cleverness, a sense of the individuality of the patient and the need for a tailored treatment, rather than one-size-fits-all algorithms.
  • It recognizes that the volume of tests ordered and the results that come back can compound mistakes.
  • It suggests that mistakes are often generated in part by the fact that there is no filtering function to the data.2

My wife and I experienced Verghese's dichotomy with the birth of our first son several years ago, in a tertiary-care hospital with some of the finest specialists and machinery in the world. When our son appeared to have a heart abnormality shortly after birth, certain doctors argued for a battery of tests, some of them arduous for a newborn. But the attending pediatrician, a wise woman with several decades of experience, fended off repeated requests for more data, saying simply, "Let's wait."

She collected her own information, visiting our sonís crib often, speaking with the nurses, sometimes pausing a moment to think before continuing her rounds. Some specialists seemed eager to employ their expertise and dig deeper into the problem; she seemed content to bide her time. Her patience paid off. A few days later our son's condition resolved itself, and we left the hospital with a healthy little bundle.

No place is more antithetical to "slow" than the world of capital markets. Stock prices respond to breaking news within the first few trades. The trades themselves take microseconds to complete. Fortunes can be lost or won in an instant.

Yet, as Tada Viskanta notes on his financial blog "Abnormal Returns," the more holistic approach of "slow knowledge" is essential to a successful investment experience:

The financial world, like that of medicine, is overwrought with data. Nearly every photograph of a trader at work shows him in front of a bank of computer screens filled with quotes and data. However that data alone does not make an effective trader.

Speed (and information) does matter in trading. However it seems worth taking the time to think about the basis for our actions in a world awash in that information. There is a real distinction between information and knowledge. Unfortunately for traders and investors there is no shortcut for getting from one state to the other.3

At the other end of the spectrum is Warren Buffett, the patron saint of "slow" in the investment world. Famous for sitting at his office desk in the evening, pouring over company financial statements with only a pencil and his thinking cap, Mr. Buffett appears to have weathered the recent credit crisis – what he called an "economic Pearl Harbor" – as well as he did the dot-com crash earlier this decade.

Yet during a period that was being called a "trader's market" with headlines prompting investors to push the sell button, Mr. Buffett says it was his lack of action more than anything that contributed to his success:

Warren Buffett believes his best deals during the economy's biggest belly flop since the Crash of 1929 may well turn out to be the ones he didn't do. Mr. Buffett slammed the door on one opportunity after another during the most harrowing stretch of his storied career. That impulse, he says, left him with the financial firepower he needed last month to strike the biggest deal he has ever done – Berkshire Hathaway Inc.'s $26.3 billion purchase of railroad Burlington Northern Santa Fe Corp.4

"I don't think Buffett gets enough credit for all the pitches that he doesn't swing at," one security analyst said. "And he gets a lot of pitches."

Swinging a bat or pushing the button on a stock trade takes less than a second. But figuring out whether and when to do so ought to take quite a bit longer.

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From the BFA Blog
You can access our blog at http://www.benningfieldadvisors.com/blog/ or by going directly to the home page of our website at www.benningfieldadvisors.com. You can also click on the link below to go directly to recommended posts.

Managing Risk With Franken-Products
Brought to you by the same folks who sponsored the global credit crisis: high-earning, "risk-free" Franken-Products.

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BFA Media Quotes

Recent Media Quotes
Reuters.com, December 14, 2009

Milo was quoted in Aaron Pressman's article, "Ousted TCW Manager Gundlach Opens Own Firm," which discusses the surprise termination of a top-performing bond manager. Milo noted that the manager's new firm would likely have little trouble attracting business. Read the article.

Financial Advisor Magazine, December 3, 2009
Milo was quoted in Ian Salisbury's article "Even After Crash, Many Seek Yield On Cash," which addresses the challenges facing investors who wish to increase portfolio income. "In low interest-rate environments such as now, too many people forget the primary purpose of cash in their portfolios: to provide a relatively risk-free investment and preserve principal," says San Francisco-based advisor Milo Benningfield. These investors "put themselves at risk of buying something that's too good to be true." Read the article.

BusinessWeek Online, November 8, 2009
Milo was quoted in Ben Steverman's article, "Stocks: Five Market Mistakes to Avoid," which discusses investment pitfalls facing investors. Despite the market rally's eye-popping returns, "I don't think many people are feeling very relieved," says Milo Benningfield of Benningfield Financial Advisors in San Francisco. Many people believe the "[stock market rally] can't last," he says. Milo also warned against two recent temptations: "This is probably the worst time in my opinion to pile into gold," Benningfield says. He also warns against currency speculation, another recent fad." Read the article.

Thank you for reading. Please look for our next newsletter in February.

Happy Holidays,

Milo Benningfield




1 www.slowsociety.org.

2 "Slow versus Fast Knowledge," Abraham Verghese, Atlantic online, 12/14/2009.

3 www.abnormalreturns.com, 12/15/2009.

4 "In Year of Investing Dangerously, Buffett Looked 'Into the Abyss,'" Wall Street Journal, 12/14/2009.

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