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This is part two of a two-part series. To read part one, go here.
Humans are tribal. Our tribalism goes back to the age of cavemen. Deep in the cave, armed with rocks and sticks, fending off predators, we found comfort that the people around us (our tribe) shared the same animosity toward the lion at the front door.
Fast-forward to Murmansk, Russia in the early 1980s. One day my apartment block started hating everyone from another apartment block across the street. Though the hate was mutual, to this day I have no idea why we suddenly hated them. I remember it got to the point that we were going to go fight them. Thank god we did not.
Tribalism makes complete sense when it comes to family – you want to know that someone will always have your back, no matter what.
Even in the workplace, if used strategically, tribalism can unite and motivate employees to create a better product than the competition (the other tribes).
Of course, there is tribalism in sports. My partner, Mike, is a lifelong University of Colorado football fan. I saw a bumper sticker on his desk this summer that read “Don’t wait till September. Start hating Nebraska now.” The CU Buffs and University of Nebraska rivalry is legendary. Tribalism in sports is usually harmless, unless you are a soccer fan in Brazil.
Tribalism in politics is less harmless, as it often turns politicians into thoughtless party-line drones. Yes, I am going to step onto unpleasant ground here, just to illustrate a point. (Trust me, I really don’t want to go there). Imagine being a Democrat and going to the Democratic convention, fully in agreement with the core values of the people around you, except that you believe all abortions should be banned. Or imagine being a diehard Republican at the Republican convention and staunchly believing that all guns should be banned. You’d feel uncomfortable expressing your views, which would have a similar effect as passing gas in public (or worse).
Holding views that go against the politics of your tribe will tend to eventually result in your either changing your views (a process that will be very incremental) or suppressing them. If what I’m saying here upsets you, I am sorry, but that just further proves my point.
In investing, tribalism is outright dangerous to your wealth. When you allow tribalism to impact your thinking, you lose the ability to think independently.
If you own Tesla stock and you have checked into the bull cave, you feel like you are surrounded by Tesla bears that are attacking you. You stick close to your newfound tribe of bulls. You are looking for your views to be constantly confirmed by the braying of your tribe. And they will be. You’ll only hear bull talking points. Your fellow tribesmen will withhold contradictory evidence and put a positive spin on any negative news.
The same applies for Tesla bears.
It is quite amazing to see how the same Tesla news can be interpreted diametrically oppositely by these tribes. Tesla releases its latest production numbers. The bulls: “Oh my god, production numbers are screaming to new highs!” The bears: “Sales of the Model 3 may be up, but sales of the profitable, high-margin S and X models are down.” This is not like unlike watching MSNBC and Fox News analyzing news from the White House.
Tribes by definition have an us-versus-them mentality. And here is the punchline: There is no “them” in investing. It doesn’t matter if you think the stock will go up or down, and people that hold a different view are not your enemy. What bulls and bears think and do will only temporarily impact the stock price. In the end, the only thing that will matter are fundamentals – the company’s earnings power and, eventually, the valuation investors are willing to pay for it. Seneca said, “Time discovers the truth.” He was probably not talking about stocks (especially Tesla’s stock), but he could have been.
The fundamentals are the “truth.” In our research we make a proactive effort not to be tribal and avoid checking ourselves into either the bull or bear cave. If you are truly trying to be a truth seeker, you need to have an open mind – something you won’t be able to have if you are a permanent resident of either cave. When we are analyzing a company we are considering buying (we don’t short), we seek out bearish arguments from bears who have done their own primary research. Bears’ words won’t harm us.
We don’t take their views as a personal insult but as a gift that can help us discover the truth. If they show us a hole in our thesis, I’ll change my mind – I won’t buy the stock, and I may even sell it if I own it. I will thank them – they spared me the pain that would have come when time discovered the fundamentals. (If investment strategy is a topic that interests you, you can read about how we do it at IMA in detail here).
By Jewish law, a court will not accept a capital punishment verdict if it was delivered by a unanimous decision of the jury. Yes, you read that right. There has to be at least one dissenting opinion for the death penalty verdict to be accepted. The court wants to make sure there was at least one voice in the proceedings that forced judges to confront the opposing argument. In other words, the court wants to make sure the decision was not merely tribal.
Milton Berle’s saying comes to mind: “I used to be bullish, then I was bearish, and now I am brokish.” My advice: Don’t be tribalish.
Vitaliy Katsenelson is chief investment officer at Investment Management Associates in Denver, Colo. He is the author of Active Value Investing (Wiley) and “The Little Book of Sideways Markets” (Wiley). Read more on Katsenelson’s Contrarian Edge blog.
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