after Mr. Webster bought it from us, the painting found its way into the collection of the White House, where (at least as recently as 1990), it hung in the Oval Office.
President-elect Trump and his family have what we might describe, diplomatically, as different taste in interior decorating.
But I hope there will still be a place in their White House for the magnificent Frederic Church landscape that my parents and I rescued from oblivion so many years ago.
As I think back on my childhood and adolescent career, two things stand out for me:
First, how fortunate I was to be raised by such a brilliant mother and father who imparted so much knowledge and intellectual excitement to me at so early an age. And with their zest for the hunt as my inspiration, it’s no wonder value investing had such attraction for me when, later in life, I studied the financial markets.
Second, how important it is to be in the right place at the right time. The art and antiques business in the 1970s was a remarkable confluence of inefficiencies and opportunities to exploit them. Back then, we could drive a few hours in any direction on any weekend and come home with a stationwagon full of beautiful old objects whose intrinsic value almost no one else had recognized. Nowadays, you could comb much of New England for weeks on end and find nothing except art and antiques priced at more than they are worth. The bargains that once abounded have been replaced by immense quantities of overpriced, undesirable mediocrities being passed off as rare and valuable. In a world in which it takes a few seconds to Google what an object sold for on eBay, undervalued art and antiques have all but disappeared.
I’m not nostalgic for my childhood, nor do I regret that I no longer practice much connoisseurship, because I know full well that those days are gone. The market for art and antiques today bears almost no resemblance to the world of my childhood, and the return to those skills, if I tried to earn my living by exercising them again, would be close to nil.2
2. Once a decade or so, on average, I do find a great antique or work of art at a bargain price. And when I do, I buy it. But if I spent every intervening moment looking for more such opportunities, I would be foolishly wasting my time.
The analogy to investing seems, to me at least, so obvious that I hesitate even to point it out. Decades ago, stock-picking was a handicraft in which information moved slowly and unevenly, so the person who knew the most could perform the best – by a wide margin. Think of Warren Buffett buying such tiny flecks of corporate plankton as Sanborn Map and Dempster Mill Manufacturing. Today, with more than 120,000 chartered financial analysts and 325,000 Bloomberg terminals worldwide and with Regulation FD requiring companies to disclose material information simultaneously to all investors, the playing field is close to perfectly level.
If you’re applying the tools that worked so well in the inefficient markets of the past to the efficient markets of today, you are wasting your time and energy. An investor who devotes weeks or months of research to analyzing a single widely-traded stock is like an antique dealer driving across the back roads of New England searching for bargains that, for the most part, disappeared decades ago. It isn’t impossible that you will find a bargain, but the odds that the rewards will justify the pursuit are low.
Today, being able to identify mispriced investments isn’t nearly enough; you also must be able to identify where mispriced investments are still likely to be found.
If investors are to prosper from inefficient markets, they have to evaluate which markets still are inefficient. Areas like microcap stocks or high-yield bonds, where index funds can’t easily maneuver, offer some promise. Areas increasingly dominated by index funds offer little.
An individual investor can still benefit from time arbitrage: You can buy into a stock when bad news poisons the price with negative emotion and then hold for years until euphoria finally returns. That’s a luxury most institutional investors no longer have.
But the skills that worked in inefficient markets rarely yield sufficient returns in efficient markets to make them worth bothering with.
Take it from one who has been there.
About Jason Zweig
Jason Zweig became a personal finance columnist for The Wall Street Journal in 2008. Zweig is also the editor of the revised edition of Benjamin Graham’s The Intelligent Investor (HarperCollins, 2003). He is the author of Your Money and Your Brain (Simon & Schuster, 2007), one of the first books to explore the neuroscience of investing, and The Devil’s Financial Dictionary (PublicAffairs, 2015), a satirical glossary of Wall Street.
Before joining The Wall Street Journal, Zweig was a senior writer for Money magazine and a guest columnist for Time magazine and cnn.com. From 1987 to 1995, Zweig was the mutual funds editor at Forbes. Earlier, he had been a reporter-researcher for the Economy & Business section of Time and an editorial assistant at Africa Report, a bimonthly journal. Zweig has a B.A. from Columbia College, where he was awarded a John Jay National Scholarship.
A frequent commentator on television and radio, Zweig is also a popular public speaker who has addressed the American Association of Individual Investors, the Aspen Institute, the CFA Institute, the Morningstar Investment Conference, and university audiences at Harvard, Stanford, and Oxford.
Zweig was for many years a trustee of the Museum of American Finance, an affiliate of the Smithsonian Institution. He serves on the editorial boards of Financial History magazine and The Journal of Behavioral Finance.
‘What You Should Remember About the Markets’ by Gary Antonacci
Because I have been an investment professional for more than 40 years, I sometimes get asked my opinion about the markets. These questions usually come from those without a systematic approach toward investing. Here are some typical questions and answers:
Question: How much do you think the stock market can drop?
Response: 89%.
Question: What?!!
Response: Well, that is the most it has dropped in the past. But past performance is no assurance of future success, so I guess it could go down more than that.
Question: I just looked at my account, and it is down. What should I do?
Response: Stop looking at your account.
Question: What are you doing now?
Response: What I always do… following my models.
After these responses, I am usually not asked any more questions.
Simple But Not Easy
Some say investing is simple, but not easy. This is due to myopic loss aversion. This combines loss aversion, where we regret losses almost twice as much as we appreciate gains, with the tendency to look at our investments too frequently.
We should remember that we cannot control the returns that the markets give us, but we can control what risks we are willing to accept. If we do not have systematic investment rules, it is easy to succumb to emotions that cause us to buy and sell at inappropriate times. The Dalbar and other studies show that investors generally make terrible timing decisions. The most common mistake investors make is to pull the plug on their investments, often at the worst possible time.
But investing does not have to be difficult
