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Visionary or Foolish Wanderer?

One of the interesting things about blogging is trying to understand which posts become popular and why. Some of my favourite posts end up as lonely whispers in the desert. Others get enough hits and retweets to make me feel warm and fuzzy (even though I insist, mostly truthfully, that I do this mainly for myself).

One thing is certain, though: many posts take off because important people - let me call them gatekeepers - take notice of them. Gatekeepers tend to be respected thinkers or simply people with large followings, for one reason or another. If a gatekeeper likes something you've written, its readership zooms up. But the funny thing is this: there's no difference in the post before or after a gatekeeper has blessed it.

Gatekeepers play an important in other aspects of our lives, as Peter Sims astutely points out in his excellent book,"Little Bets". Everett Rogers began researching how ideas spread in the 1950s, and coined the term "early adopters" to describe people who were trendsetters. Rogers' theory culminated in the S-curve/bell curve of adoption, which will be familiar to those in the tech industry, and readers of Malcolm Gladwell's "The Tipping Point":

Ideas in investing have their own adoption curves. An undervalued asset will remain thus, until a critical mass of investors agree that it is more valuable than previously thought. Unsurprisingly, a cottage industry has grown around trying to understand what the smartest investors do. I've haven't yet had a chance to read Meb Faber's "Invest With The House", but he is worth listening to on the topic (starting around 8:30), as he digs into Warren Buffett's returns. Rather than competing with the best, he argues for investing alongside them on the cheap.

This strikes me as a reasonable strategy for some investors, but with several important caveats (Faber mentions many more on the podcast). First, it is worth remembering that the gatekeepers of the investment world - by which I mean visionary investors as distinct from those who are "gatekeepers" by virtue of controlling large sums of money - did not get there by thinking the same way as their peers. But herding is, of course, all too common in investing. According to Sims, legendary short-seller Jim Chanos calls this the smart-guy syndrome. When hedge fund analysts go to a dinner in New York or London and hear someone they think is smart talk about a company, "the next day, they all go take a two percent stake in the company." But it's worth remembering that, like blog posts, there is no difference in the asset before and after someone famous takes a stake in it - other than its price.

Furthermore, it's important to draw a distinction between the adoption of investment philosophies and the adoption of specific investment ideas. With good investing philosophy, it's perfectly valid to say "better late than never." There's no cost to being a laggard when adopting a sound framework. But with specific investment ideas, it's better never than late. At some level of enthusiasm (and price), any asset can be a dangerous investment. So, by all means, pay attention to what the gatekeepers do, and invest alongside the ones you have confidence in - but remember that following them is by no means a sure thing. And remember also that, somewhere, a future gatekeeper is doing something so unfashionable or controversial that she seems a foolish wanderer in the desert - but which will look desperately obvious with the benefit of hindsight.

Additional links:

The Ezra Klein Show, "Malcolm Gladwell on the danger of joining consensus opinions"

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