Successful collectors of investments earn above investment inflation returns, demonstrate discipline in their acquisition plan and do not accept external validation as a top-up payment in lieu of capital return. To my great chagrin, an impressive number of self-declared investment collectors fail to meet the minimum standards of return and discernment. Why is this the case and if they are not successful collectors, then just what are they?
Often, in the entertainment world, the only meaningful differences between a television series marketed as uplifting vs one clearly indicated to be a tragedy are the selections of appropriate background music, the inclusion of a laugh-track or cue cards informing a studio audience when to clap or hoot; remove external prompts and the subject matter might well be the same. In media, external stimuli controls, promotes and shapes perception, guides opinion and advances a narrative. Test-marketing of shows is done in such a way as to confirm an implicit bias by producers of any series: “this show is really funny, don’t you find it funny? Of course you do. Everyone in the room thinks that it is hilarious, listen to all of that laughter in the background!”
To more clearly illustrate how marketing and external cues meaningfully impact public perception, by way of example, consider how viewers regard the two long running reality TV series entitled “Hoarders” and “American Pickers”. “Hoarders” is advertised as a sobering series, possibly with life or death consequences; “Pickers” is promoted as an uplifting and irreverent backwoods Americana treasure hunt. Remove the up-tempo bluegrass background music used in American Pickers, eliminate the facial expressions of each series hosts, ignore television ads framing each show to target a different viewing demographic and the series are sufficiently similar, I surmise, that potential show guests likely phone into a single hot-line staffed by a media person with a background in social work who sorts through applicants. Those who fail to make the cut for Hoarders are likely referred to American Pickers or vice versa.
An exploration of an underlying mental condition, Obsessive Compulsive Disorder (OCD), represents the premise behind both series. In Hoarders, guests are shamed, typically unsuccessfully, and attempts are mode to modify self-destructive behaviors. In American Pickers, those same observed destructive patterns of behavior are enabled and validated, via an exchange of a few hundred dollars for a dubious collectible or two, by the stars of the show, who are likely themselves on the OCD spectrum. The two shows start off exactly the same: hosts visit an individual with a warehouse, home or building stuffed to the rafters with items acquired over a great number of years. At that point the shows diverge and veer off in opposite paths.
Hoarders focuses upon intervention; ALL of the rubbish is carted off to dumpsters by a multitude of staffers wearing hazmat suits and rubber gloves. Behavioral psychologists counsel the subject into how best unacceptable behavior may be modified, family members sob and the hoarder is pressured to proclaim, on international television, that they will turn the page and cease collecting junk. Each episode is tragic, disheartening and leaves viewers with the unsettling feeling that once the cameras stop rolling, hoarding will resume, almost immediately.
American Pickers markets itself as a positive, transactional experience; focusing upon the extraction of one or two items of modest value identified in a mountain of memorabilia housed between four walls. The stated theme of the series is that a trove of treasure sits in the attic, garage or spare rooms of almost all Americans, awaiting discovery. This is not far removed from the Kabadiwala garbage pickers of India, who sort through waste to find one or two scraps of modest monetary value and turn the scraps in for cash. Each weekly plot of Pickers is formulaic; two friendly hosts visit an individual who has, over many decades, amassed a medium sized warehouse or hangar, stacked to the ceiling with a variety of items that they declare to be collectibles. During a typical episode, the sellers regale the hosts with colorful stories about how they have acquired all of the junk since olden times; often they dreamed of having a collectible store of their own. The hosts navigate through obstacle courses of nondescript parts, glance through boxes of decomposing books, blow iron dust off of metallic items and proceed to grade the garbage: “this stuff is nice, but we cannot resell it at our shop, just hold onto it longer”, these items are ok, but look to be a bit water damaged from that leak in your roof”, “these items I can sell in my own shop, how much will you take for it?”. At the conclusion of the garbage grading, several trinkets are haggled over, for modest prices, that the hosts have identified as having potential resale value. Near the end of the episode, a few items are loaded into a panel van; a token sum changes hands, a hoarder is awarded with an “attaboy” for making one or two profitable picks, amidst hundreds or thousands of poor decisions, and the show ends.
I understand the economic motivation behind appearing on “Hoarders”. In that show, one puts up with a tongue lashing; in exchange, a property is completely cleaned up. ALL of the junk is removed at no out of pocket cost. Hazardous material is carted off, rotting and mold ridden collections are taken to the dump; the building being decluttered is in better shape at the end of the show than when it started. The economic trade is assumed to be fair; half an hour of scripted shaming = a garbage makeover.
But what is the motivation to guest on American Pickers, a program that markets itself to aspiring collectors? The stated theme of the show is a treasure hunt; economically speaking, American Pickers represents a terrible exchange. Guests who appear in each episode sell off the ONLY moderately valuable items in their collections for a couple hundred bucks; most of the junk on the premises at the start of the show still remains on the premises at the conclusion. Piles of rubbish are inferred to be just that, rubbish. Lacking a fair monetary exchange, it is evident that true compensation for the guest lies in the form of emotional validation; by appearing on the show, a proclivity to hoard is portrayed in an affirmative fashion. Half a century of money and time wasted, stuffing one’s outbuilding to the roof with refuse = 15 minutes of fame; all justified by the addition of uplifting banjo music to divert thoughts of melancholy.
Remove a banjo and a lighthearted ditty is revealed to be as it was truly intended.
Perception shapes reality in media. Would American Pickers so easily line up prospective guests were it more appropriately named “American Garbage Pickers”? Imagine an outreach call by the show producers: “we’re doing an episode on hoarders in your region. We’ll wade through your trash, give you about $214 in total for five pieces of your garbage, but for the purpose of the show we’ll call them collectibles. Then, we’ll load them up in a panel van and toss it in the nearest dumpster once filming ends, would you be willing to appear on our show? No, we won’t clean up your property, that’s another show called “Hoarders”….all you get from us is a couple hundred bucks for a few easily transportable, non hazardous items. In return, you’ll have to accept that what you fervently believe to be a hidden collection of valuable antiques, is in fact, just a garbage heap. But, your story will be told with a banjo backtrack and we’ll call you a true collector. Do we have a deal?”
“All hoarders know that they are collectors but not all collectors know that they are hoarders”; that represents the line of demarcation between the two series. Both series feature guests possessing the same psychosis. In Hoarders, outcalls are made to the producers of the show when prospective guests lack the financial resources to amass more garbage or even clean up their existing structure. In American Pickers, the “collectors” featured on the show have also run short of funds but have not yet hit rock bottom. There is no contrition involved with Pickers, no shame, no self-reflection; guests sell off their “best of the worst” items in order to fund their pursuit of owning yet more junk. This isn’t implicit, most guests, at the end of the show, when asked what they’ll do with the funds, are pretty darn specific about their intent to acquire more items as soon as the cameras stop rolling.
After watching several episodes of each show for context, I am struck by the similarities in these shows and the daily actions undertaken by many in the investment world. Unproductive investment maneuvers are promoted, using external prompts and applauded, when they should clearly be discouraged and even occasionally be shamed. The great goals of all equity buyers are largely the same and are simple enough on paper: make good choices, amass enough capital for a comfortable retirement and perhaps even more. When one makes a mistake, which we all do, learn from it and drive forward. So, why then do so many stray off the path? Why do so many make bad choices and hold onto bad choices forever? Why has an entire generation of investor decided that selling off their winners, hanging onto their losers and using the proceeds from sales to procure even more losers is the right course of action? Why do so many fail to generate a return above investment price inflation over time? If one has way more losers or sub-average investments in a portfolio, why do investors keep trading away their successes to make more bets? To paraphrase the folksy comedian Jeff Foxworthy: “You might be an investment hoarder if…..”
Were external prompts promoting a narrative removed, would investment behaviors for many change, and more importantly, would they change for the better or for the worse? Many (not all) of my own interactions with investors fail to provide me with a pat answer, but I am occasionally concerned by the status quo. After investors introduce themselves to me as fellow collectors, some then push ahead and declare themselves to be a variation on a “value investor”. This is unsurprising; in the investment world, a massive substrate exists called value investing. Adherents rely upon variations of modern portfolio theory to assess the relative values of things. They presume that as I write about the holding of securities for extended periods of time without actively trading, I MUST be a value investor, just like them; and since we are kindred spirits, we will get along famously. The basis for conversation is never framed with impartial questioning; it begins with presumption, presses on to a request for investment validation with an ending point that I will confirm their bias. If confirmation is not immediately forthcoming, the exchange ends; their quest for validation begins anew, elsewhere.
Enduring and effective cues have been created to promote the practice of the value investor. So prolific is the marketing supporting the value investment style that it has morphed into a form of idolatry; one cannot question either the effectiveness of the process or the relative lack of success by practitioners. The model of the value investor is based upon modern portfolio theory but validation for the value investor represents a substitute payment in lieu of return; value investors receive prompts that serve to imbue them with a sense of superiority. Priests within the religion of modern portfolio theory provide prompts, in the form of maxims, to address these flocks. Over time, value investors have adopted dubious proclamations with the same zeal that Catholicism treats the Beatitudes. The most widely quoted maxims of the value investor are as follows.
1. Invest in what you know.
2. One man’s garbage is another man’s gold.
3. Look for companies that were like a discarded cigar butt and had one more smoke in it.
Invest in what you know…..what if you only know about low margin, commodity based businesses that operate in freely competitive markets? What if your knowledge is limited to a specific niche business that fail to produce a return above investment inflation? What if you just don’t know much? What if your knowledge base is completely and hopelessly out of step with the current economy? These are all valid questions and if your answer is yes to any of the above, then investing only in what you know is a clear bias that may be profit limiting.
One man’s garbage is another man’s gold…..in the real world, most garbage eventually decomposes. Decomposition (the financial equivalent is “depreciation”) increases the probability of loss on the acquisition of said garbage; the longer one owns a pile of trash, the greater the probability of decomposition negatively impacting your return. Even American Pickers cannot support the premise of gold for garbage; the garbage grading process inevitably only turns up a bit of value and when appraised against the aggregate cost of the rubbish heap, it is abundantly clear that most of the initial acquisitions are money wasted. Collecting mass produced souvenir spoons is far different from collecting rare and priceless artifacts.
Look for companies that were like a discarded cigar butt and had one more smoke in it….is the most nonsensical investment maxim of them all. Cigar butts are the remainder of a cigar; they are discarded, either on a sidewalk or some sort of ashtray, to be pitched out with the trash. The butt consists of an exterior leaf, now blackened, with some tobacco filler remaining. Any remaining tobacco filler isn’t what it was when the cigar was first rolled, which was a pristine leaf with prime nicotine. What remains is a bit of tobacco, some residual nicotine, DNA and potential viral particles from the prior smoker, mucous and partially refined tar. Has anyone, ever, in the history of smoking, witnessed a hard-core smoker, somewhat down at heel, walk up to someone in the process of butting out a stogie and declare “when you are about done with the cigar, I’ll buy the butt from you for $.25.” You have never heard that utterance, because even a bum realizes that a cigar butt isn’t worth paying anything to acquire. No, the most addled vagrant realizes that a cigar butt is a worthless item, so potentially infected by the prior smoker, so toxic after the tar within the leaf has been drawn down into the butt from the process of smoking, so harsh on the draw, so potentially likely to burn one’s fingers by attempting to light the end, that the personal health risk of smoking a butt is far greater than it is smoke a full cigar; the only reason that the indigent smoke butts is because a nicotine addiction overrides common sense; yet even a bum operates with a sense of economy, they won’t BUY a cigar butt.
These investment proclamations serve but one purpose, they influence. If one relies upon such maxims, the expected outcome is that one should limit their search for investments, one should be actively biased at all times and one should invest in garbage. External maxims, when overlain on the foundation of modern portfolio theory, which promotes the grading and trading of securities, represents a hurdle that is clearly too ingrained for some to overcome.
Adults of all shapes and sizes possess brains that are roughly the same weight (1300-1400 grams), roughly just a 7% difference separates the largest brain from the smallest adult brain on the planet. There isn’t an enormous mental processing capacity difference between the rich and the poor, the business owner or the employee, an investor from one country to the next. What differs greatly between successful and unsuccessful investors might therefore be external; stimuli applied on the masses vs the wealthy. The ultra-wealthy are not as willfully influenced as the rest of us, they are more skeptical, more deliberate and as a result, the media don’t bother with them, marketing monies are always expended to capture the lowest hanging fruit first.
Investors behave in certain fashions, at least to some extent, as a result of the persistent marketing prompts that promote and support actions. Strip away cues to focus upon the results and what is revealed are that only two categories of collector exist: the successful collector and the hoarder. If you are not earning an above IPI return over time, you are clearly not the former and your plan of action requires remediation. Some of the worlds most widely known investors have been known to buckle under the weight of external cues over long durations; if it can happen to them, it can happen to anyone.