The Importance Of Taking An Outside View

In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss The Importance Of Taking An Outside View. Here’s an excerpt from the episode:

Toby: It is a little bit germane to the next point that I have, though, from– This is the Robeco piece. So, they have this great line here. This is Andrew Lo in Adaptive Markets, Robeco’s quoting him. He says, “Intelligence–” [crosstalk]

Jake: He is a professor from MIT, right? Is that–?

Tobias: I forget where he is a partner. I think he was either Research Affiliates or something like that. I might be wrong about that.

Jake: All right, that’s fine.

Tobias: I need to go and look that up. He was only mentioned in the paper. He’s not the subject of the paper, but the quote is great. “Intelligence is the ability to generate accurate cause and effect descriptions of reality.” I wish that he hadn’t used the word ‘intelligence’ there, but I like the idea that what you’re trying to do is generate these accurate cause and effect descriptions of what reality is. So, we’re going about it in slightly different ways. You’re calling a lot of people and I’m trying to take an outside statistical view of what happens.

The risk I always think is if you get too close to these businesses, you can develop a narrative. It either makes you like the business more than you would otherwise like them or you feel you know it until you’re in it and you feel you know it a little bit better. I just fade my own ability to make decisions on that basis. So, I tend to be outside.

Bill: Yeah, look, I’ve said that I may index. I think that people think I’m throwing in the towel or something when I say that. I’m not. I am respecting– One of the things that doing podcasting in general has done is it has opened my network to have discussions that I otherwise would not have. When I have had those discussions, I’ve found out, “Holy shit, I don’t actually know that much.”

Bill: Part of why I’m considering doing things like indexing is I accept that I have my own limitations and that’s part of my answer. Part of the reason that I’m somewhat okay with that is you’re insured of catching the really big winners. Now, in my view, one of the problems that the index may have is that today’s winners may be overvalued relative to the future.

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