This week and next I’m taking a break from my usual analysis of some aspect of renewable energy. I’ve been studying hard for the second Chartered Financial Analyst® exam, and it has gotten me thinking about my investment philosphy. Why, do I, as a lone investment manager feel that I can beat the market, which essentially means making better judgements about stocks than all the other extremely bright an well funded people looking at the same stocks?
My answer is that large money managers are constrained by who they are: They have a lot of money, so they cannot effectively invest in small, thinly traded securities, and I also think that many institutions have a quantitative bias: they tend to use matematical models for valuing stocks. But mathematics has blind spots, and numbers cannot describe every truth about the world, or about companies, so I think that there is more potential for an individual to spot mispriced securities where the big managers can’t look: being a big fish in a little pond, as it were.
Here is Part I on “Beating the Market.”