Investor Psychology

Conspiracy Theory Lessons for Investors

Good investors have a talent for focusing on the facts that matter most. Bad investors do not.

I just read Vincent Bugliosi’s terrific Reclaiming History: The Assassination of President John F. Kennedy (2007), and I was struck by the 1,648-page epic’s unspoken investment lessons. After 50 years, who knew?

 

First, my bias. I have long been convinced that Lee Harvey Oswald acted alone. I know that 59% of Americans disagree. But let’s approach this issue the way an investor might.

Filter out the noise. More than 1,000 books have alleged a JFK conspiracy, while just a few have denied that one existed. The views of conspiracy theorists have dominated since publication of the Warren Commission Report in 1964. Soon afterward, Woody Allen joked he was working on a nonfiction version. Conspiracy theorists were exciting. They were the Teslas of their time! Warren Report defenders were like minivans.

The lesson: An investor always needs to be alert to the possibility that one side of the story is receiving undue attention.

Facts can distort. Good investors have a talent for focusing on the facts that matter most. Bad investors do not. Here are some facts that mislead conspiracy buffs: Our government lied about Vietnam and Watergate. The CIA conspired with the Mafia to assassinate Fidel Castro. So there.

So what? Such data points are, from an investor’s perspective, irrelevant and can overwhelm more-pertinent facts. You need hard specifics (evidence of a fourth gunshot or an Oswald–Jack Ruby connection, for instance) to prove a JFK conspiracy. To my mind, there is no such evidence.

Consider the source. But wait, I hear you saying, what about Oswald’s rifle, the fourth shot recorded on the Dictabelt, Ruby’s mob connections and so on? If a conspiracy theorist says Oswald wasn’t a good enough shot to kill JFK or didn’t have time to fire three shots, ignore anything else he or she has to say. The person is either lying or mistaken. The Dictabelt evidence of a fourth shot has been debunked, and Ruby wasn’t ever even close to the mob. If someone in your investing life—a CEO, a broker or financial planner—tells you one whopper, others are likely to follow.

Something that is hard can represent opportunity. Warren Buffett has a file for investments that are just too hard to gauge. Many people assign the JFK assassination to a similar pile. Fine. After all, as my wife says, “What do I get for being right?”

By debunking the JFK-conspiracy crowd, you get nothing but intellectual satisfaction for being right. But if you make the right call on a complex case—for example, investing in the shares of General Growth Properties in 2009 while it was in bankruptcy, as I did—you can earn a huge return (I made 2,600%). Even in bankruptcy, GGP’s assets exceeded its liabilities by $2 billion. Its value was hiding in plain sight. You just had to work to find it.

Flip the facts around. You think Oswald and Ruby were part of a conspiracy? Well, that means someone hired an uncontrollable loner who was a good, but not great, shot and gave him a second-rate rifle, then hired as a second hit man a notorious blabbermouth who even his friends thought was mentally unstable. This is your crew? I am reminded of the days when many thought triple-digit annual Internet growth would lift all dot-com boats. The flip-side question: Won’t that cause enormous competition, falling prices and, ultimately, many failures?

Hard work pays. Most conspiracy buffs have not spent time looking at all the facts. No biggie. But in investing, if you give crucial information short shrift, the consequences could prove fatal to your portfolio.

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