Great Value Investors Have A Willingness To Look Stupid

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During his recent interview with Tobias, small cap value manager Eric Cinnamond discusses how great value investors have a willingness to look stupid. Here’s an excerpt from the interview:

Tobias Carlisle: It’s been a very rough five years for valuations just because it’s been such a long cycle where value hasn’t worked. I think it’s the longest that I can find in the data. It’s sad because it’s meant that a lot of value investors have left the … Everybody’s just shutting down.

Eric Cinnamond: Well, who do you respect now? I mean, I’m having trouble finding people I respect in the industry. A lot of them have disappeared, some of them have passed away, and some of the greats I just scratch my head sometimes what the things are saying. So they’ll say one thing and then invest differently. So I just feel a little … And this is what’s nice about our new firm, is we’ve got three absolute return managers who are very like minded and very true to their discipline. But I’m finding that class of people that got the technology bubble right, people that got the housing bubble right.

Eric Cinnamond: They’re all different directions now. Everyone’s gone in so many different ways because the cycle’s been so long. I think after five years, you’re like, “I gotta change because this isn’t working.”

Tobias Carlisle: You’re out of a job.

Eric Cinnamond: You’re out of a job or mentally it’s hard to maintain that for so long. So I’m struggling now and this is why I love this alternate media you’re doing. And I know Jessie Felder does it and I think it’s great, but it’s nice because you can find that community where there’s still some people that think the same way or haven’t given up.

Tobias Carlisle: Can find the handful of weirdos who haven’t given in yet.

Eric Cinnamond: Exactly. It’s a support group. My name’s Toby, I still believe in cycles.

Tobias Carlisle: I do and value investing, which you’re a complete laughing stock if you believe in value investing. I always say this, there’s nobody from my vintage who’s famous because it’s just been … I mean, there are no well known value investors from my vantage beforehand. So there’s Ackman, and there’s Einhorn, Dan Loeb. And they’re all activists, but that was the cycle, too. But there’s really nobody who’s been able to establish a track record below those guys who’s in the market now.

Eric Cinnamond: Yeah, and credibility expires. I remember after a technology bubble, credibility high. By 2005, I was an idiot again. And then after the housing bubble, credibility high. And I’m back to being an idiot again. But the key to absolute return investing and discipline in investing in general is the willingness to look different and the willingness to look stupid. It’s very important. So if you’re uncomfortable with that, you might as well just go with the flow. So if you’re going to be a great investor, you can’t look like everyone else. It’s impossible.

Eric Cinnamond: I mean, all these consultants want lower risk, higher returns, but they want you to look the same while doing it. So it’s impossible. So you have to be different.

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