What Jim Morrison Understood About People (And Most Investors Don’t)

09.02.2017 • Investing

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By Tim Price – The Price Report (Great Britain) –

“People are strange when you’re a stranger

Faces look ugly when you’re alone

Women seem wicked when you’re unwanted

Streets are uneven when you’re down”

– From People Are Strange by The Doors.

The history of rock music is the history of alienation and disenchantment, the history of the outsider. Think of Major Tom’s isolation, floating out in space, alone, in David Bowie’s Space Oddity. Or Eric Carmen’s All By Myself (a song I loathed throughout my youth whenever other people played it). Or People Are Strange by The Doors. By all accounts it was written by the band’s charismatic frontman, Jim Morrison, then 24 years old, in just one “take” after a walk along Laurel Canyon in Los Angeles in early 1967. Within four years, Jim Morrison would be dead.

But then people really are strange. In this issue I will show you how.

Research Affiliates is a $170 billion US-based fund management company and a “thought leader” in the areas of so-called smart beta and asset allocation. My own jury is out on the topic of smart beta – which is essentially a more quantitative alternative to market capitalisation-based investing – but I absolutely acknowledge the significance of asset allocation within a successful investment strategy. Research Affiliates’ research is always interesting.

A piece from last month, “How Not to Get Fired with Smart Beta Investing”, is especially intriguing.

First, a killer chart.

Research Affiliates split the long-only equity world into four underlying strategies: value, momentum, quality and growth. It will come as no surprise that I am an advocate for value, and thereafter for momentum (a large component within the “absolute return/uncorrelated” portion of The Price Report Portfolio and especially of my client accounts). “Value” I would define as high-quality businesses with high-quality management, trading for some reason at a meaningful discount to their inherent value. “Momentum” I would define simply as trending strongly (higher, in this case) in price.

“Quality” I would describe as simply popular, or well regarded by the average investor. “Growth” I would describe simply as expensive quality.

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