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Market Fable of the Fishing Boat


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The Fable of the Fishing Boat


Then there was the time in 1978 when the bear market was taking its toll on Putnam’s holdings. Walt (The technical analyst of the firm) just couldn’t make the portfolio managers understand that bear markets trump even the best fundamentals.


So he circulated the following memorandum to Putnam’s investment department, which he considers the best thing he ever wrote:


Once upon a time, there was a big fishing boat in the North Atlantic. One day the crew members noticed that the barometer had fallen sharply, but since it was a warm, sunny and peaceful day, they decided to pay it no attention and went on with their fishing.


The next day dawned stormy and the barometer had fallen further, so the crew decided to have a meeting and discuss what to do.


“I think we should keep in mind that we are fishermen,” said the first to speak. “Our job is to catch as many fish as we can; that is what everyone on shore expects of us. Let us concentrate on this and leave the worrying about storms to the weathermen.”


“Not only that,” said the next, “but I understand that the weathermen are ALL predicting a storm. Using contrary opinion, we should expect a sunny day and, therefore, should not worry about the weather.”


“Yes,” said a third crew member. “And keep in mind that since this storm got so bad so quickly, it is likely to expand itself soon. It has already become overblown.”


The crew thus decided to continue with their business as usual.


The next morning saw frightful wind and rain following steadily deteriorating conditions all the previous day. The barometer continued to fall. The crew held another meeting.


“Things are about as bad as they can get,” said one. “The only time they were worse was in 1974, and we all know that was due to the unusual pressure systems that were centered over the Middle East that won’t be repeated. We should, therefore, expect things to get better.”


So the crew continued to cast their nets as usual. But a strange thing happened: the storm was carrying unusually large and fine fish into their nets, yet at the same time the violence was ripping the nets loose and washing them away. And the barometer continued to fall.


The crew gathered together once more.


“This storm is distracting us way too much from our regular tasks,” complained one person, struggling to keep his feet. “We are letting too many fish get away.”


“Yes,” agreed another as everything slid off the table. “And furthermore, we are wasting entirely too much time in meetings lately. We are missing too much valuable fishing time.”


“There’s only one thing to do,” said a crew member. “That’s right!”


“Aye!” they all shouted.


So they threw the barometer overboard.


“When the time comes to buy, you won’t want to.”

– Walt Deemer


h/t CSInvesting

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I heard a couple good investing related allegories this week.


A fisherman noticed that his catch had been particularly good in recent days and decided to mark the location. After making careful measurements, he precisely drew an X on the floor of his boat.


An economist absentmindedly drove his car until he felt a thump. Heart pounding, he looked behind and saw a prone figure. With a cry of "I must fix this", he hit the reverse.

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Guy Spier tells a good one in a Manual of Ideas video interview.  A value investor and an EMT Economist are walking down the street and they see a hundred dollar bill on the sidewalk.  The Value Investor says hey look, a hundred bucks and promptly picks it up.  The EMT Economist shrugs and says it cant be a real hundred dollar bill because if it was it wouldnt be lying there!

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Beware of people who know the price of everything and the value of nothing.


e.g. CNBC, economists, most bankers, anyone who uses a formula to guide the entirety of their investment decisions, those who dive too deep into details and miss the big picture, those who just look at the big picture and don't dive into any of the details, those who quote stock prices without mentioning anything fundamental on a per share level...

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