Investors Must Continue To Challenge Their Long Held Beliefs

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During his recent interview with Tobias chats with Jim O’Shaughnessy, best selling author and Co-Chief Investment Officer at O’Shaughnessy Asset Management (OSAM), discusses why investors must continue to challenge their long held beliefs. Here’s an except from the interview:

Jim O’Shaughnessy: This is a classic example of a practice of mine that I think everyone should get in the habit of. That is when there’s very very smart people writing very very smart things, you got to read them. You might not agree with their final conclusions, that doesn’t matter. What you have to do in my opinion to ground yourself and continually test the calibration of your mental models is you’ve got to read intentionally people who you disagree with or you know you’re going to disagree with right.

Jim O’Shaughnessy: Because the chances are really good that I could be wrong, right. The problem is is that we begin to think of our beliefs as facts. They’re not facts, they’re beliefs. Challenging a human being’s beliefs, boy you want to see anger, you want to see just pure hatred, start really poking at somebody about their most deeply held beliefs. It’s not a pretty picture. What you’re going to see is you know everything from argument ad horminum you know “O’Shaughnessy you’re a jack ass, you’re an idiot, you know you don’t know what you’re talking about.”

Tobias Carlisle: You don’t get it.

Jim O’Shaughnessy: Right, you don’t get it.

Tobias Carlisle: You don’t understand.

Jim O’Shaughnessy: You don’t understand. It’s so funny because I intentionally go out of my way to… I know I probably don’t get it. You know there’s a lot of things I don’t get. That’s why you have to try to read as broadly as you can in my opinion to continually test because really things that we think of right as even quantitative rules that have 80 years of empirical evidence, they’re still probabilistic right. They can change right!

Have our bedrock ways of managing money changed? No. Have the underlying strategies evolved? Absolutely. In fact, if you looked at a say let’s take market leaders value right, which used to be called corner stone value back in the 90s. Has it changed? Pretty much entirely. Same theme right, buy cheap market leading companies of good quality that have high use to be dividend yield now it’s shareholder yield which is by back plus dividend yield.

Jim O’Shaughnessy: It morphed through evolution into what I think is a vastly superior strategy. I think if you and I are talking ten years from now, it’s going to have morphed again. I love one of the things that people say about quants you know the throw away line is “Whoa, what do you guys golf all day” or you know, whatever. No. The research team here is forever doing research and sometimes it’s really un-sexy research. For example we have very negative views on price-to-book as it is currently used. That isn’t because we decided we don’t like price-to-book, that was because we’re doing continual research and we’re saying “There seems to be some problems here.”

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