Humans are tribal. Our tribalism goes
back to the age of cavemen. Deep in the cave, armed with rocks and
sticks, fending off predators, we found comfort that the people around us
(our tribe) shared the same animosity toward the lion at the front door.
Fast-forward to Murmansk, Russia in the early 1980s. One day my apartment
block started hating everyone from another apartment block across the
street. Though the hate was mutual, to this day I have no idea why we
suddenly hated them. I remember it got to the point that we were going to
go fight them. Thank god we did not.
Tribalism makes complete sense when it comes to family – you want to know
that someone will always have your back, no matter what.
Even in the workplace, if used strategically, tribalism can unite and
motivate employees to create a better product than the competition (the
other tribes).
Of course, there is tribalism in sports. My partner Mike is a lifelong
University of Colorado football fan. I saw a bumper sticker on his desk
this summer that read “Don’t wait till September. Start hating Nebraska
now.” The CU Buffs and University of Nebraska rivalry is legendary.
Tribalism in sports is usually harmless, unless you are a soccer fan in
Brazil.
Tribalism in politics is less harmless, as it often turns politicians
into thoughtless party-line drones. Yes, I am going to step onto
unpleasant ground here, just to illustrate a point. (Trust me, I really
don’t want to go there). Imagine being a Democrat and going to the
Democratic convention, fully in agreement with the core values of the
people around you, except that you believe all abortions should be
banned. Or imagine being a diehard Republican at the Republican
convention and staunchly believing that all guns should be banned. You’d
feel uncomfortable expressing your views, which would have a similar
effect as passing gas in public (or worse).
Holding views that go against the politics of your tribe will tend to
eventually result in your either changing your views (a process that will
be very incremental) or suppressing them. If what I’m saying here upsets
you, I am sorry, but that just further proves my point.
In investing, tribalism is outright dangerous to your wealth. When you
allow tribalism to impact your thinking, you lose the ability to think
independently.
If you own Tesla stock and you have checked into the bull cave, you feel
like you are surrounded by Tesla bears that are attacking you. You stick
close to your newfound tribe of bulls. You are looking for your views to
be constantly confirmed by the braying of your tribe. And they will be.
You’ll only hear bull talking points. Your fellow tribesmen will withhold
contradictory evidence and put a positive spin on any negative news.
The same applies for Tesla bears.
It is quite amazing to see how the same Tesla news can be interpreted
diametrically oppositely by these tribes. Tesla releases its latest
production numbers. The bulls: “Oh my god, production numbers are
screaming to new highs!” The bears: “Sales of the Model 3 may be up, but
sales of the profitable, high-margin S and X models are down.” This is
not like unlike watching MSNBC and Fox News analyzing news from the White
House.
Tribes by definition have an us vs. them mentality. And here is the
punchline: There is no “them” in investing. It doesn’t matter if you
think the stock will go up or down, and people that hold a different view
are not your enemy. What bulls and bears think and do will only
temporarily impact the stock price. In the end, the only thing that will
matter are fundamentals – the company’s earnings power and, eventually,
the valuation investors are willing to pay for it. Seneca said, “Time
discovers the truth.” He was probably not talking about stocks
(especially Tesla’s stock), but he could have been.
The fundamentals are the “truth.” In our research we make a proactive
effort not to be tribal and avoid checking ourselves into either the bull
or bear cave. If you are truly trying to be a truth seeker, you need to
have an open mind – something you won’t be able to have if you are a
permanent resident of either cave. When we are analyzing a company we are
considering buying (we don’t short), we seek out bearish arguments from
bears who have done their own primary research. Bears’ words won’t harm
us.
We don’t take their views as a personal insult but as a gift that can
help us discover the truth. If they show us a hole in our thesis, I’ll
change my mind – I won’t buy the stock, and I may even sell it if I own
it. I will thank them – they spared me the pain that would have come when
time discovered the fundamentals. (If investment strategy is a topic that
interests you, you can read about how we do it at IMA in detail here).
By Jewish law, a court will not accept a capital punishment verdict if it
was delivered by an unanimous decision of 23 judges who decide upon
capital cases. Yes, you read that right. There has to be at least one dissenting opinion for the death
penalty verdict to be accepted. The court wants to make sure there was at
least one voice in the proceedings that forced judges to confront the
opposing argument. In other words, the court wants to make sure the
decision was not merely tribal.
Milton Berle’s saying comes to mind: “I used to be bullish, then I was
bearish, and now I am brokish.” My advice: Don’t be tribalish.
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