What the “Shoe-Button Complex” Can Teach About Investing

“…named for the condition of a family friend who spoke in an oracular style on all subjects after becoming dominant in the shoe button business.”

As an investor, you can’t have an opinion on everything.  If you have an opinion, you may fool yourself into thinking you actually know something about the subject.  Having an opinion does not presume any particular actual knowledge of a subject (see Jenny McCarthy’s on vaccines).  Being able to say “I don’t know” separates you from a large portion of the investing world (and the entire staff and most guests on CNBC).

When someone finds out I  manage an investment fund, they typically inquire about Facebook, Google, or as is the fad this week, J.C. Penney and Blackberry.  I must sound like a broken record when I respond with repeated flashes of brilliance: “I don’t know” or “I am not quite sure about one.”  Typically, they quickly assume that I am obviously a below-average performer and move onto the weather.  Sometimes, I mix it up and talk about an incredibly interesting company I have been researching, say for example, one that makes “food processing equipment” and controls 70% of said market.  My wife is not surprised that I eat most of my lunches alone at my desk….Luckily, she is able to talk about Facebook and Google and hence we have friends.

More to Explore

Returns for Great vs. Bad Businesses

Munger and The Cattle Rancher

Munger’s ability to find great businesses is directly related to his ability to consistently discard bad businesses. He is excellent at inverting, and discarding the bad businesses as quickly as possible.

The Abominable No-Man and Bad Management

Some investors think a business is good, but know that management is bad.  These investors justify the investment based on the idea that the great price of the business is worth the bad management. This is akin to marrying a supermodel who is going to yell at you all day.  Whatever pleasure your eyes may derive from the marriage, your ears will endure a greater amount of pain in the long run. The pocketbooks of those partnering with bad management are likely to see a similar 50%+ decline in their net worth.


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