Infatuation with speculation: Speculation is guessing what other investors will do in the short term.What matters (at a minimum) is performance over rolling five-year periods. But short-term performance is largely random, and usually cannot be maintained.
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Short-term thinking: Many professional investors advertise their short-term track records, and many clients sign up on this basis.Hagstrom writes that many investors, both professional and amateur, have fallen into bad habits, including the following: The last section-How To Become a Great Detective-sums up what you as an investor can learn from the three Great Detectives. Last but not least, Father Brown is the third Great Detective discussed by Hagstrom. Sherlock Holmes is the most famous Great Detective. The Pulitzer Prize-winning journalist Edna Buchanan is an excellent example. Top investigative journalists are great detectives.
The financial journalist Jonathan Laing’s patient and logical analysis of the Sunbeam Corporation bears similarity to Dupin’s methods.
The first Great Detective is Auguste Dupin, an invention of Edgar Allan Poe. Top investigative journalists follow a similar method. (Illustration of Sherlock Holmes by Sidney Paget (1891), via Wikimedia Commons) They’re quite willing to discard a hypothesis, no matter how well-supported, if new facts lead in a different direction. They painstakingly use logic to analyze the given information and reach the correct conclusion. They discard facts that turn out to be irrelevant and keep looking for new facts that are relevant. Great detectives very patiently gather information from a wide variety of sources. Hagstrom argues that investors can learn from the Great Detectives as well as from top investigative journalists. Many investors are too focused on the short term, are overwhelmed with information, take shortcuts, or fall prey to cognitive biases. One of his best is The Detective and the Investor (Texere, 2002). Hagstrom has written a number of excellent books on investing. (Image: Zen Buddha Silence by Marilyn Barbone.)