In the short term many factors impact stock prices. In the long term stock prices are driven by the underlying fundamentals of the companies for which they are proxies.
It’s an obvious truth but one many of us often forget. It’s why we’re so easily swayed when we look at short-term data and wrongfully conclude that performance is a result of acumen and process. To wit, “Sometimes smart people will look stupid and vice versa.”
This brings us to the Father of the Internet. Former VP Al Gore has become a very wealthy man in his post-political career as co-founder and chairman of Generation Investment Management. The firm has more than $15 billion of assets under management and focuses on investing in low-carbon generating sustainable companies.
By allowing ideology to infect investment process he’s fallen ass backwards into success garnering excellent performance for unintended reasons. The culprit? Al Gore’s love of Mother Earth. Here’s how Charlie Munger – #2 man at Berkshire Hathaway behind Warren Buffett – described it at the Daily Journal’s annual meeting:
Al Gore has come into you fellas business. He has made . . . $400 million in your business. And he’s not very smart. He had one obsessive idea that global warming was a terrible thing. So his idea when he went into investment counseling is he was not going to put any CO2 in the air. So he found some partner to go into investment counseling with and says we’re not going to have any (carbon dioxide). But this partner is a value investor and a good one. So what they did is, is Gore hired staff to find people who didn’t put CO2 in the air. Of course that put him into services. Microsoft and all these service companies were just ideally located. And this value investor picked the best service companies. So all of a sudden the clients are making hundreds of millions of dollars and they are paying part of it to Al Gore. Al Gore has hundreds of millions dollars in your profession. And he’s an idiot. It’s an interesting story. And a true one.
Let’s summarize. Al Gore sets out to invest in an ideology – the environment. In doing so he’s unintentionally drawn to the services sector. Being in the right place at the right time resulted in excellent performance. Al Gore seems like a genius. Al Gore is anything but.
The moral is as always. Anyone can look smart or dumb in the short term for questionable reasons. Choosing an investment manager and process based upon short-term data without understanding the underlying reasons is a loser’s game. It’s over the long term that a sustainable and repeatable process proves truly valuable.
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