How many times have you looked at a certain investment situation and just wished you had better insight into how future events would play out?
Jason Apollo Voss is one of those great investors and as co-portfolio manager of the Davis Appreciation and Income Fund (DAIF), he smoked the market.
Retired at 35, he’s written a book to help investors improve their intuition using both sides of their brains.
Expand your mind. Learn and invest outside the box.
Announcer: Live from the Internet, it’s Tradestreaming Radio, with your host, Tradestreaming.com’s own Zack Miller.
Zack: Hey, this is Zack Miller, and you’re listening to Tradestreaming Radio, where investors learn directly from experts bringing you tools, tips, and technologies on a regular basis to help you become a better investor. Our guest today, Jason Apollo Voss, wants to do just that by helping you use both sides of your brain. He’s the author of a book, “The Intuitive Investor: A Radical Guide for Manifesting Wealth.” While the title may sound a little bit flimsy, Voss is definitely not. He has built his street cred as the co-portfolio manager of the Davis Appreciation and Income Fund. While he was there, the fund bested the NASDAQ by 77%, the S&P by about 50%, and the Dow Jones by 36%. That’s over the life of his tenure. Voss really lived the tenets that he will talk about, both in his book and on this conversation. I found it very interesting and hope you do as well.
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That’s right. I guess we picked a propitious day to conduct the interview.
Jason: Well, I was just telling my wife that. I was like, “I couldn’t ask for a better day to talk about intuition and why it’s important.”
Zack: So what’s your intuition telling you now?
Jason: Well, quite honestly, I look at intuition as being just another tool, not as the exclusive tool. Frequently, when I’ve done interviews, subsequent to having written “The Intuitive Investor,” people look at it as a panacea or a silver bullet. I just look at it as another way of processing information, and honestly, the information from intuition isn’t that different at this moment than the information you could glean from just reading the major financial press. So my intuition is telling me that people are a little disjointed. They’re a little uncertain about what this means – the debt downgrade, of course, of the United States is what we’re talking about. In that uncertain environment, people are kind of in a wait and see mode.
The one slice that I can say my intuition suggests is happening is that most people are actually not that nervous about it. At the periphery, there are people who are nervous, but there are also people at the periphery who are nervous about the Greek Debt Crisis. There are people at the periphery who are nervous that the U.S. may experience a double-dip recession since manufacturing growth has slowed. There are always people at the periphery who will be more sensitive to specific news. I guess other than the fact there are people at the periphery who are nervous about the debt downgrade, I think, actually, most people are okay with it, but they’re in wait and see mode.
Zack: Isn’t it true though, I guess, I’m also in the business as well, that the media sort of preys on those people? They’re not actually going out and targeting those people, but it’s like that sort of chaos or crisis mentality. The people who I’ve been speaking to this morning, they are panicking. Not like the panic from what we had two and half years ago. It’s more just like, “Here we go again. I don’t know what to do. I don’t whom to trust. The game’s just stacked against me.”
Jason: Well, this environment is actually very different than it was three years ago, as we headed into the Great Recession. I commented about this on my “What My Intuition Tells Me Now” blog. The primary reason it’s different is that businesses in 2008 were not very lean, nor were they very mean. There was a lot of fat, there was a lot of bloat within those businesses, and the Great Recession really forced them to trim headcount. It forced them to negotiate very strongly in terms of things like supplier relationships, for example. So businesses are, if in fact there is a double-dip recession, which I don’t happen to think there will be; businesses are very strong, and businesses ultimately account for the majority of the economy. What we’re talking about here, and what’s different in 2011 is a crisis within governments themselves, and governments don’t really contribute that much to the economy. It’s not that they don’t. It’s just that by comparison to what businesses in the First World and other places like China and India contribute, it’s a very small percentage. While there may be panic, I think that this crisis is a very different crisis than the other one.
Zack: Great. So let’s dive into the book. Can we start with basically your background, and I would be curious to hear how your approach diverged from those around you. Investing is very much, at least portrayed as being, not necessarily a social science. It’s probably closer to physics. Even though we know that it’s probably much closer to or resembles a social science, because even though you can add a lot of equations and fundamental analysis to things, a lot of times it is intuition that drives our decisions, both good and bad. So how were you received among your peers with this sort of different approach? I get from reading your book, you buck the trends anyway.
Jason: Well, there are multiple questions in there. When I was working as portfolio manager of the Davis Appreciation and Income Fund and doing very well relative to my peers and within my category and even on an absolute basis; I was using my intuition, but not with the degree of consciousness and application that I am now. What happened was, as I reviewed my career after retiring at age 35 back in 2005, I was evaluating what it was that I did well, and what it was that I did that I didn’t think my peer group was doing. By and large, it was that I had a balanced left and right brain. So at that level, I was very cognizant of what I was doing that others weren’t. I learned very quickly in the investment business that the right brain is actually where most of the money is to be made. It’s not because it’s superior to the left brain and left brain analytical process.
There are a couple reasons for it. The first is there is no such thing as a future fact. All facts by definition are things that occurred in the past, but investing unfolds in the future. So there’s this gap between fact-based analysis and actual investment, and they’re they are actually somewhat at cross purposes with one another. That’s something I learned within probably the first six week or so, upon becoming a research analyst back in the 1990s. Then the second reason why the right brain makes you a lot of money is because most people don’t train their right brain or focus any effort in there. They’ve convinced themselves that it is a left brain process, which you alluded to in terms of things like fundamental analysis, etc. Because of that focus, and part of it’s a cultural focus, we have a cultural focus on facts-based decision making, means that most people aren’t looking there. The competition isn’t as fierce in that right brain realm.
So I think that answers most of your question there, but I’m happy to address more.
Zack: So I guess the core content base of your book came after you left the field, thinking about how you sort of assimilated all this information? How you made decisions?
Jason: Well, that’s correct, and you’ve read portions of the book, I’m certain. Believe it or not, a lot of the material in the book came through a meditative process. I teach folks in the book on how to engage in meditative process. It’s my belief, and there’s a lot of science that supports it, that the meditative process is accessing that right brain, that more intuitive aspect of consciousness and of mental process. So as I was sitting down to analyze a lot of what I had done well, a lot of the material from the book suggested itself, and really what that material is, is structure around that intuitive process. So “The Intuitive Investor” is a book that really says, one, we need a greater source of information than just facts in order to do well in investing. We need to open ourselves up to more information, and in my experience, intuition was a natural fit for facts-based analysis.
Then after making that argument, it’s like, “Okay. How do we tap that intuition?” So first of all, we acknowledge intuition is important. Now how do we access it? There’s lots of mental pollution that actually corrupts intuition, and in fact, behavioral finance folks are quite fond of pointing out the limitations of the right brain, but those are always in scenarios in which there was a left brain, analytical answer that they can compare it to. This is different. This is actually, “Let’s look at the left brain and its limitations.” Mostly it’s that they have to look at past things, factual things, where there is a right answer. As you know, Zack, because you’re also an investor, investing is just a lot more complex than facts and a two-dimensional, linear thinking would suggest. If it were that easy, everybody would be making money.
So anyway, most of the book’s structure is what came after I retired. But what I was doing in terms of tools, and the book has lots of anecdotes in it, were things that I was doing naturally on a day-to-day basis. What was missing was the threads that made obvious what I was doing to be successful.
Zack: It seems that you use sort of a reflective process. It seems that you’re that way as an individual, in your own personal life, and you certainly recommend to use that in terms of the skill set that investors should use as well. Did you start out making good intuitive decisions when you started, or was that sort of an iterative process?
Jason: No, it was a disaster actually. There’s no quicker teacher of your personal limitations than the world of investing. I’m absolutely convinced of that. I’ve at various times been an athlete. I’ve at various times been a graduate business school student, etc. But investing has a way of pointing out your shortcomings very quickly. One, it’s very, very complex. There’s a lot of information. There’s a lot of noise out there in the information landscape. So that’s bewildering. So you have to get skills around that fairly quickly, or you’ll lose money. Then the Devil is in the details. That is that the results of investing are objectively measured, not subjectively measured, right? So you’re either making money or you are not. So when I first started off, honestly, my process was entirely left brain. I would look for the secret, esoteric measure of . . . like if I just uncover this 1930s edition of “Security Analysis,” I just know that Benjamin Graham has put in there what I need to know in order to do well. That tool just doesn’t exist. That silver bullet just doesn’t exist. The real silver bullet is getting tools into your arsenal that actually complement your natural abilities and that serve you. So I know hedge fund managers who are deeply intuitive, but the tools they use in order to access their intuition are radically different than the ones I use.
Zack: So can we talk about some of those tools that you used?
Jason: Yeah. For example, I know the emphasis here is on the intuitive investor side of things, but I’ll start with the left brain analytical. I’m a huge believer in primary data. It’s really important to me. One of my secret weapons on the fundamental analysis side is to type in, by hand, that primary data into spreadsheets. There’s something about the tactile experience of that that really lends itself to learning and absorbing what the information is. When you create spreadsheets that are as mechanical as what you see in, say, like an SEC File 10-K or 10- Q, you really learn the machinery of a specific business. So that’s a tool, for example, on the left brain side.
On the right brain side, the primary tool is a meditative process, because that’s really the vehicle for accessing the various right brain strengths. Here I’m talking of a couple. One is the ability to remove emotional process and emotional thinking from all of your decision making, That’s a right brain ability. It’s also that the right brain is good at that intuitive process, but it’s also good at creativity, which is connecting the various facts that are on hand and knowing which ones are the important facts. I think of that as a discernment or creative process. So those are really the tools. Basically, if I had to distill it down, there are some left brain tools, of which there are many, but the primary right brain tool is meditation.
Zack: As you’re saying this, it sounds like the fund you were in was an opportunity fund. So do you think you would have been as successful if you were in a tighter niche focus, like a sector fund?
Jason: No, absolutely not. This is actually something I talk about a little bit in my book, and I’ve talked about on my blog quite a few times. Mutual fund managers ought not to outperform your average, intelligent, personal, little guy investor. The reason why is there are a number of limitations on your ability to do well. One of them is that there are SEC mandated diversity rules, and I call them “diworsification” because in my portfolio for example, the Appreciation and Income Fund, we held between 35 and 45 names at one time, but I really only liked about 15 to 20 of them at any given time. The rest of them were there because I couldn’t have concentrated positions. So that’s one reason that the individual investor can outperform somebody else.
Another reason is exactly what you alluded to, Zack, which is sector funds. There’s a lot of pressure from boards of directors, pension funds, insurance companies, etc, who hire you as money managers to be of a particular flavor. So you’re a large-cap growth fund. You’re a mid-cap value fund, what have you. The problem with that is then you’re not making choices based on excellent investments. You’re making choices based on, “I need to adhere to this style if I want to continue to have these folks invest with me.” And that’s bad for returns ultimately. My charter was very, very flexible at the Appreciation and Income Fund. I was able to invest in stocks, fixed income. I was able to invest in options, which I never really did, and I was able to invest in things like convertible securities, like convertible bonds, convertible preferred stock, etc. Even given that flexible charter, I would have preferred a more flexible charter even than I was granted.
Zack: That was going to be my next question. I guess, fast forward a decade, would you have seen yourself as a hedge fund manager now?
Jason: Maybe. It’s really difficult to handicap that sort of a thing. At a certain point, I had so many other things that I wanted to do with my life when I was 35, that investment management didn’t really hold an appeal for me the way it had when I was, say, in my early 20s. When I exited college, I thought that portfolio manager at a mutual find was the sexiest job that I could possibly imagine. As I did the job and did the work, you’re not supposed to say this, but it got less challenging, quite honestly. I mean I got pretty good. My batting average was probably .750 to .800 in terms of picking good stocks, not amazing stocks, but good stocks, avoiding losses, that kind of a thing. I had a lot I wanted to do. I was 35. I really wanted to study the martial arts, which actually was the primary motivator to me retiring, and quite frankly, as I allude to an epiphany that begins my book, I really thought there was going to be a global financial meltdown. I thought that was very clear. I didn’t see a way that I could move through that period with the charter that I had for my fund and actually make money. It would have been very difficult, because I was hired primarily as a money manager to generate equity-like returns, and I really felt I should be in cash. The answer from typical boards of directors at mutual fund families is, “You’re not a cash manager. That’s not what your shareholders want you to do. They’re hiring your because they want you to be an equity manager.” There wasn’t permission to sort of skirt that. So there were lots of reasons. [inaudible 17:00] I will answer your question if I were going to reenter it, that’s probably were I would put my energies, would be into a hedge fund type of environment with a very flexible charter.
Zack: So what’s interesting to me is that you’ve had all this personal growth, and that sort of made you into the person you are, and then you wrote a book saying that a lot of those same skills are replicable. Can you talk to me about that a little bit? It seems left brain is easy to replicate. You learn some formulas and you just do it. Now right brain, it’s like it’s a lot more amorphous. How do you work with people to help instill some of the same tools that you built in your own arsenal?
Jason: Well, what your question is evidence of is what I’ll call kind of a cultural prejudice, and that prejudice is toward, as I alluded to earlier, a left brain, fact-based sort of process. It’s the dominant belief system of our culture right now that science is king, and there is good reason for that. That is because the postulates that science puts forth are replicable and demonstratively replicable, right? But underlying all that is a metaphysical assumption, which is that the only things that are real and the only things that we will treat are real are those things which are replicable. So if you’re willing to accept that there is a metaphysical foundation for science, you can begin to question. You see, “Okay, science actually is a limited way of looking at the world.” So my process is let’s incorporate the best of science, but let’s also acknowledge that we’ve all had experiences in life that we can’t quite explain with what science teaches us.
So as soon as you’re willing to make that jump, then you can begin to go, “Okay, let’s focus on that right brain.” What I have found is the right brain does respond to method. It is in many ways replicable, in this sort of success. The only reason it seems amorphous is because there’s not much emphasis on the right brain.
Let me give you an example of what is replicable and what can be done, but honestly, and I’ll be perfectly frank with the audience, it’s tough, some of this stuff. It’s not tough because it’s impossible. It’s tough because many of us, like me, started applying method to the right brain at age 32, whereas I started learning math when I was probably 4. So there’s a lot of ingrained, habitual type of behavior that you have to unwind.
Anyway, an example of where the right brain responds to method, I spend a lot of the early portions of the book talking about the difference between emotions and feelings. The sole difference, as far as I’m concerned, is that a feeling is a pure sensation received. I have an exercise in the book to demonstrate this, where I asked folks to turn into the temperature of the space that they are in at the moment. Every time that I’ve done this exercise over the last five or six years, if you ask people the following questions, they all raise their hands. The first question is: “How many of you began using words to describe that experience of the temperature?” So an example would be, “Well, it’s kind of hot in here.” Or “I’m uncomfortable. It’s cold.” Or whatever. Then the other question is: “How many people ascribed a number to that?” “Well, it’s about 72 degrees Fahrenheit in here.” “It’s about 20, whatever, degrees Celsius in here.” It’s always 100%, and that’s basically a prejudice.
The prejudice is let’s take a feeling sensation, because the temperature exists independently of our ability to describe it. So dogs and cats have an ability to experience the temperature, and they can’t describe it with words. They can’t describe it with a number. So it suggests the temperature is actually greater than the tools we use to describe it. What happens, though, since we have that prejudice to put it into words and numbers, is we add prejudice and now call that an emotion, because as soon as we’ve done that, we have a whole set of preferences around that. “I prefer it to be 82 degrees.” “I prefer it to be cooler.” Whatever. When you have those preferences in there, they start to obscure the actual, objective sensation. The temperature is measurable, and it is objectively what it is, but our minds and our tendency . . . we train our minds, and we spend most of our lives training our minds to immediately take feeling sensation and translate it into these limited modes.
To demonstrate the limitation of numbers, if you think about somebody you love, think about the number that best describes that love for someone. Right? You’ll get some people who are crass. “Well, on a scale of one to ten . . .” But then again, you have a prejudice there, because your scale of one to ten is different that somebody else’s scale of one to ten because different people have had different experiences of what love means. So you can’t even get around it there. So these are all prejudices that, if you’re going to train the right brain, you have to get aware of that unconscious process of translating feeling sensation. For example, “That person over there creeps me out.” We’ve all had that sensation of someone being creepy, yet usually we’ll translate it into words or some sort of sensation. We take it away from the sensation and put it immediately into numbers and words. So the first level of training is you’ve got to strip away that prejudice, because you have to have an objective viewpoint of what is that certain sensation that I’m receiving? I know that’s a long-winded answer, but it’s so cutting edge and radical at a certain point, you have to put in all the background information to help people understand what I’m talking about.
Zack: So can you give us an example, and you have, I guess, in the last chapter of the book, a real-world story of how you used your intuition to size up . . . can we take GGP, for example? General Growth Properties?
Jason: Yeah, General Growth Properties I’m happy to talk about.
Zack: I picked that one just because it’s been in the news with Ackerman and everything.
Jason: It is absolutely in the news, much to the chagrin of my former co-portfolio manager Andrew Davis, because we were the largest shareholders of General Growth Properties at the time of the story that I relate in the book. I was in Chicago with my co- manager, Andrew Davis, to visit with Morningstar, the mutual fund evaluation folks, and GGP is headquartered in Chicago. So we tried to kill two birds with one stone. We went to the Morningstar meeting, and then we went to General Growth Properties. GGP was not technically my axe, which is industry parlance for it wasn’t my responsibility, it was Andrew’s. We sat through a meeting with John Buxbaum, the CEO and son of the founder, I think, or grandson of the founder. I can’t remember which. He was really delightful and what have you. My peers, Andrew and Chandler Spears, who managed the Real Estate Portfolio, were asking him questions. He had really good answers for the business. He clearly was the more strategically minded of the folks.
Then in walked Bernie Friedbaum, their CFO. I sat through this meeting and I listened to what he had to say, and he had very intelligent answers. The reason for the meeting was that GGP was stretching the bounds of credulity in terms of what a real estate investment trust would spend on an acquisition or invests in malls. Here I’m talking about shopping malls. They were willing to pay much, much higher numbers for these malls than other real estate investment trusts were willing to, and they were doing it with leverage predominantly. They just felt that they had such a unique ability to make a sexy mall, sales per square foot at these malls would be enough to justify the higher amount of debt used to lever up returns.
So that’s what most of the conversation was focused on. Anyway, Chandler and Andrew listened to all the questions and what have you. What I noticed though, and what was very intuitive, and look at the mind state I’m in here. This is an intuitive state of mind. It’s not my responsibility to be there. I’m kind of a passenger there. I’m in this meeting because we’re all going to the airport at the end of the day, on the same flight, whatever. So I was able to listen in a different way. I wasn’t engaged in the left brain analytical thing. I didn’t have a set of questions I wanted to ask him, so I was able to just relax and pay attention in a different way. What I noticed was that Bernie had this gigantic watch, which is still the single largest wristwatch I have ever seen in my entire life. It was absolutely diamond encrusted. I’m guessing it probably cost around a quarter of a million dollars or something? I don’t know the value of that kind of thing. I’ve never shopped for that kind of thing before. I noticed that he had the cuffs on his shirts tailored so that you could notice this watch, and I noticed that he kept positioning it so that you see this watch. My intuition said, “Oh my God! This man is not running this business for the benefit of the shareholders. He’s running it for the benefit of his own self-aggrandizement and his own personal bank book balance.” That wouldn’t be a bad thing, but the amount of ego tied up in it suggested that he didn’t really care about the shareholders, and that was a bad thing if you’re the larges shareholder of this business. As we left for the airport, Andrew and Chandler, they weren’t so much skeptical, in their defense, about the levered returns, but their whole focus was on a left brain kind of analysis. They asked me what I thought of him, and I said I hated that watch. That was all I said, because to me, the watch told the entire story in terms of how that business was being managed. So that’s an example of intuition being in operation and revealing the critical piece of information there, and it had nothing to do with the left brain stuff.
Zack: That’s just a limited window into their business, right? If you were to be a true intuitive investor, that would be a feeling that you got, and then you would have to explore internally how the company’s being run, right? Through metrics or through more conversations? I guess my question is, is that enough to discard a potential investment?
Jason: Well, it absolutely is. This is one of the exercises that’s most critical in my book, “The Intuitive Investor,” is the feeling of the truth when it happens. We have all had that feeling before. I have an exercise in the book. We’ve all had that situation in our lives where we had a person in our lives that we felt was a friend, and for whatever reason, it just never seemed to click. We couldn’t quite put our finger on what was not working, why the friendship wasn’t deeper, or more meaningful for them as it was for us. It could be a relationship, an intimate relationship. Then there’s a moment when they actually tell you the truth of their feelings of you, and there’s a release of all that emotional winding up. The emotions, remember, were obscuring your ability to tune into the truth of a situation. That feeling of clarity, that feeling of “aha,” when you have that feeling . . . you can’t go out searching for it. What you do is you’re sort of in a passive state, and this is the key to accessing right brain. In a passive state, you clear your mind of the left brain noise, where it sounds like numbers and mental chatter. You clear that out and you’re sort of in that meditative state, when that feeling of the truth happens, it’s absolutely something you pay attention to. So yes, if you see that wristwatch and that feeling is accompanied with it, that’s absolutely your sign that this is relevant information.
Another example will help clarify this type of thing. There was another moment in my career, and this was early in my career. I was flying to San Francisco for a technology conference. I think it was Bank of America Technology Conference, back in like 1999, right at the height of the Dot Com Era. I had flown there to try and understand this Internet phenomenon. I had been an early, early, early adopter of that kind of social networking technology. I ran a computer bulletin board system back when I was 14 years old in 1984, and ran it for three or four years. So I was quite familiar with email and all that crazy stuff that we now take for granted, but I still couldn’t understand the Internet from an investment standpoint. It didn’t make any sense to me relative to the valuations that were happening at that time. So I went to this conference because there was lots of language along the lines of, “If you don’t get it, it’s because you’re a dinosaur, and there’s no real way of convincing you of its import.”
So I go to this conference, and my flight was delayed leaving Albuquerque to get to San Francisco. It was really late at night when I rolled in. It was like 11:30, and I had to get up at 5:30 in the morning in order to go to this conference and read the news, and what have you. So I’m exhausted, sitting in the back of a cab, going to the conference. Again, look at my mind state – relaxed, kind of surrendered, and I noticed this billboard on the side of highway, and it’s of a little boy peeing. He’s like peeing into a fountain or something like that. It wasn’t a statue. It was an actual little boy, and they photographed this, and it was for a company called Stream.com. What struck me immediately, in terms of that intuitive process, was the absolute, sort of decadence of the image. At that moment, I was like, “Okay. This is mostly about decadence and hype.” This meaning the Internet phenomenon. That actually drove a lot of my decision making over the next two years, and that is, I avoided a lot of the technology companies that other people were hyping. I did so based on that image, because I recognized in that moment, the truth of the matter was this was more about decadence and hype than it was about real truth, businesses changing the world. It’s not that they didn’t and ultimately didn’t. It’s just that the valuations were driven by something else.
Zack: By eyeballs, right?
Jason: Yeah, exactly. Price per eyeball was a common metric. I know two examples may seem kind of extreme, but they’re not once you’ve learned to trust your intuition. We have a really deep mistrust of that process. But again, that feeling of the truth was present in that moment. It’s like, “Aha! I get this.” And we’ve all had those moments in our lives. The idea is, how do you train yourself to get to that moment, with all other things that you might be considering?
Zack: Do you continue to stay active in investing?
Jason: Active like a portfolio manager is active? No. Absolutely not, but I still manage my wife’s and my investment portfolio.
Zack: So you retired young. You have all these various interests all over the place. I guess, where do you spend your time now? Like you mentioned martial arts. What else are you up to?
Jason: Well, you catch me at an interesting moment, because I wrote and promoted my book over the last three and a half years, and I have just accepted and been offered a job. Because background checks and everything else is still in motion, I can’t disclose who, but it’s actually a very, very important position within the financial industry, but not as a money manager. So this is an interesting call to have.
Zack: I’d love to have a follow-up call.
Jason: Yeah. That position, I will describe the nature of it without disclosing who the employer would be. But my job will be to travel around the world and do kind of what Zack Miller is doing right now, which is interviewing people at the cutting edge of finance and then creating content around that for a very large, established base of sophisticated consumers of that information. I’m quite excited about it actually.
Zack: That sounds awesome. One thing I ask all participants on the podcast, and you actually devoted a couple of pages to this, I was happy to see, at the end of your book, is sort of resources that they could recommend to my listenership. Things that you read or you come back to, that you find valuable to you in your investing practice. Things that you would recommend to my audience?
Jason: Yeah, no problem. In fact, most of the things that I recommend are on that left brain side. The right brain, as applied to money making, has not really been explored in an intelligent, grounded fashion. We have some New Age, bizzarro texts out there that encourage you to like use Tarot cards and crazy stuff like that in order to tap you intuition.
Jason: Yeah, exactly. So I can’t recommend anything on the right brain side, honestly, other than my book, and that was one of the reasons I wrote it. But on the left brain side, I think “Security Analysis,” the original Benjamin Graham, the Graham and Dodd book is absolutely the best book ever written about finance. It goes through all of the analytical methods you really need. I actually like the 5th edition, which is from I believe, 1987. You can find it used on Amazon or AbeBooks, or whatever. I like it because my goal as a portfolio manager, one of them is to never make a left brained, analytical mistake. If there is information out there about a company, I don’t want to make a left brain error because everybody has access to that information. I thought that was inexcusable. So that requires a real disciplined approach, and that book is a soup-to-nuts book on how to do that. It’s not a pleasant read, but it is a great read, ultimately. I’ve read it multiple times, because you have to go back to it, until it’s kind of mapped mentally for yourself.
Another great book . . . I think that one of the real skills that most individual investors lack, that the professional does, if they chose to do it, and I’ll speak to that in just two seconds, is how to value a business. Fundamentally, if you know how to value a business, you avoid a lot of investment mistakes. There’s a great book by a gentleman named James Zukin, and I think it’s called, “Financial Analysis and Valuation.” It’s in the bibliography in my book. That book is the best book, hands down, about how to value anything. It’s like how to value a divorce settlement, how to value a sports franchise, how to value a limited partnership interest when somebody wants to sell. Then, of course, the greater focus is how do you value equities. That book is genius. It’s very expensive. It’s published by a little-known publisher from Chicago called Warren, Gorham, and Lamont. If you can get a hold of that book, sit down with it and read it, you’ll get basically everything you need to know how to value.
Zack: Even eyeballs?
Jason: No, I’m sorry. They don’t have price to eyeballs in there. One of the cool things about that book is once you have bought it and you’re on WGL’s mailing list, they contact you periodically with supplements, which have updates on how to value certain things. So for example, I said how to value a divorce. If I remember correctly, that was in a supplement published after the initial book. Barring those two books, there are other books that are interesting, but they’re not really complete in the way those two are. If you read those two books, you will be miles ahead of most individual investors, I guarantee it.
What I would suggest, though, to the listenership is read, read, read, read, read, read, read, because knowledge is one of the fundamental ways that you can activate your creativity. Creativity works with what you have to create new combinations and new ways of looking at things. So as a former professional manager, now as a blog writer, and now about to be an investment professional in a different way again, I read about 19 to 20 newspapers a day. It took about two and half hours in the morning to scan the headlines. This is your guiding principle as an individual investor. If you encounter a story, the basis of it you do not understand, that’s immediately an indication that you need to read that story. The idea is to grow your knowledge base as much as you can, and with that knowledge, you start to understand the information landscape in a much more powerful way than you otherwise would. So anyway, I would recommend those three things, mostly.
Zack: That’s great. I find that with Internet tools like RSS or email subscriptions, what ends up happening from a content consumption point of view, is we end up reading the things that we already know about, that sort of resonate with us. It doesn’t necessarily stretch you or push you to have to encounter harder material. I think that’s a real interesting recommendation, to sort of push yourself. I have one last question for you. This is going to sound like it’s going to come from left field, or right field? Depends on which part of you brain. Can you envision an investing platform online that would help investors utilize some of the tools that you’re talking about? Like a research platform that could help people plug in to that, or is this sort of a solitary process?
Jason: This is a solitary process. Ultimately, even the left brain tools that are out there are a solitary process. I guess I would answer by saying the tools that are out there are right brain process as well, because the right brain provides that critical leap of, “Why is this information important? Oh, this is important, and here’s why.” The right brain, when combined with the left brain, is when you get real discernment. That’s when you get “experience,” which is one of our culture’s limited ways of talking about a right brain experience. We’ll say, “Oh that person has years of experience.” What that really means is that they’ve learned to apply both sides of their mind to discerning what they need to know.
The reason it’s a solitary process, Zack, is because . . . I spend some time in my book talking about this, and frankly, if I had the opportunity to write a second edition of my book, I would spend more writing about what I’m about to share, which is you have to figure out who you are as a human being before you’re going to be a good investor. There are lots of reasons for that. Once you know who you are, whether you’re a risk taker, whether you’re more conservative, what have you; then you can begin to develop tools to either compensate or accentuate what your natural proclivities are. The reason this is a solitary process is information will be unique to you and your skill set in a moment. The way to make, I think, real investment returns in the long run is not to be the next Warren Buffett, because Warren has developed tools and a certain amount of discernment based on how he works and functions, and he’s done it at a very, very high level. So my point is that every investor has the unique opportunity to take a combination of investments to generate return. I kind of look at it as just as there are different basketball players’ styles, and they’re all successful. Like Kobe Bryant is a very difference player than a Shaquille O’Neal, for example, but they’re both successful, yet the game is the same. I think what they’ve learned to do is they know what their natural talents are, and they’ve accentuated them and have found ways to compensate for what they don’t know. So in answer to your question, are the tools there? I think the tools are already there. It’s just that you have to have consciousness of who you are, what your limitations are, so that you can take that information and use it to best maximum use given your skill set.
Zack: Great advice. Jason, thanks so much for your time today.
Jason: Yeah. Thank you, Zack.