VALUE INVESTING
The Dangers Of Ultracrepidarians

By Stephen Bland (TMFPyad)
October 28, 2005

I heard this great word for the first time a couple of years ago - it was supplied by our reader jeffrubinstein. An ultracrepidarian is a person who gives opinions beyond their knowledge. There is, it seems to me, no shortage of such people in the investment world.

Even a casual glance at our bulletin boards or those of others sites will reveal thousands of messages commenting on individual shares and various strategies etc., an enormous proportion of which, I am in absolutely no doubt, is written by meritless people in no position, whether by qualification, experience or success to advise others. How though is a new reader, perhaps not even appreciating the staggering level of often emotionally charged and biased ineptitude that prevails, to judge the quality of such information?

Difficult.

When I started investing, and got beyond the press tip, office gossip, sure thing, stage which of course always went wrong, I started to formulate my own version of value. I rapidly narrowed down to a very small number those to whom I might listen in order to help develop my ideas. These were people I either knew personally or about whom I had read. The critical defining factor was that they had been successful in following an approach similar to mine. Value was hardly a new idea even then. Why listen to anyone else?

Okay, there were no Internet bulletin boards back then. In fact, it was so long ago was that the printing press had only recently been invented. Consequently, the dissemination of information was infinitely slower. But it had one advantage compared with today. You would usually know the quality of the person dispensing advice. On today's bulletin boards, you rarely know what qualifies a person to deliver the opinions that appear. People have all sorts of reasons for promoting or knocking a share or strategy from the innocent to the mischievous to the downright insidious. And a naïve reader might well be tempted to invest, or not invest, for the wrong reasons, guided by those without right to guide.

I don't usually follow company boards but I remember looking at for a big bank. There was a thread about poor service a reader had received but the implication was that the share was a bad investment for that reason. Our reader, having suffered, had motives for the messages which, from his point of view, were entirely honourable. He merely wished to draw attention to his plight, perhaps suggest that others do not use that bank. But to a beginner reading this and considering buying the shares, it may well have put them off if they did not realise that all the banks are the same. All have a small proportion of dissatisfied customers and this kind of thing makes not a jot of difference to their qualities as shares to hold.

And that is one of the more respectable examples. Perhaps the worst offenders are the company boards. These are often emotional charged battlegrounds between the pros and cons, with little comment possessing the kind of detached unbiased clear analysis essential to successful investment.

However, amongst the dross, there is a certain amount of decent stuff, whatever style of investment suits your personality, and that is the only style in which you should be interested sufficiently to indulge. The problem is to distinguish the worthwhile messages from the less than so.

Beginners to investing tend to seek out too much information as they try and find their way. Totally understandable, especially if you do not yet know which strategy suits. If you go down the value route you will find that the more you know the less you want to know. The old minimalist's adage of "less is more" applies perfectly. In the end you should be able to ignore everyone else's opinion including mine. It actually took me a long time to get to the stage where I disregard the opinions of others on an investment. It helps not to even look for them but it is of course very tempting so to do.

Just find a share with the right value fundamentals and let it talk to you. Don't overanalyse it or waste too much time on macro issues which are almost irrelevant to short term value plays.

Nirvana for value investors is to be able to operate in a vacuum with only yourself and your investment tools for company.

Stephen Bland is away this week. A version of this article was originally published in May 2003.