Rhino Investing and Corrective Lenses
Perspectives, by Mark Robertson, Managing Partner April 1st, 2005
If you invest like a rhinocerous or map the migration of lemmings, be assured there's a better way.
Most of the “investing” we hear about every day is focused on something different than we are. Wall Street’s obsession with quarterly results and meeting short term price and earnings targets is inconsistent with our long-term approach to investing. This frenzy resembles a sport and some companies have made proactive (and commendable) decisions to discontinue their participation in the chaos and confusion. If you invest like a rhinocerous or map the migration of lemmings, be assured there’s a better way.
Crashing by Committee
During a recent discussion of the works of Erwin McManus, we were reminded of the labels attached to groups of animals. In his book, The Barbarian Way, McManus shares some observations about groups of animals at the San Diego Zoo.
“I suppose that I always knew it in part, but I had not come to fully realize how most groups of animals have unique names or designations when they dwell together.
“With insects most of us know that bees are called swarms, and fish congregate in schools. Cattle are herds, birds are flocks, and if you watched Lion King, you know a tribe of lions is a pride. If you grew up in a rural setting, you may know that crows are murders. Maybe the most unnerving one is an ambush of tigers.
“I was surprised to learn that a group of buzzards loitering together is called a committee.” Hmmm.
“But my favorite of all is the group designation for rhinos. Rhinos can run 30-40 miles per hour, which is pretty fast when you consider how much weight they’re pulling. They’re actually faster than squirrels. Just one problem with this phenomenon…
“Rhinos can only see 30 feet in front of them. Can you imagine something that large moving in concert as a group, plowing ahead at 30 MPH with no idea what’s at 31 feet??
“You would think they would be far too timid to pick up full steam, that their inability to see sufficiently far ahead would paralyze them to immobility. But with that horn pointing the way, rhinos run forward full steam ahead without apprehension, which leads us to their name.
“Rhinos moving together at full speed are known as a crash. Even when they’re just hanging around enjoying the watershed, they’re called a crash because of their potential.”
Helmets or Spectacles?
In the early days of 2000, Cisco Systems (CSCO) was among the more strongly recommended stocks in the stock market. I documented this condition in an article for Better Investing at the time. The momentum rhinos were in full crash mode as CSCO reached a stock price of $82 on March 27, 2000.
Hindsight may be 20/20, but a MANIFEST review of Cisco Systems at the time revealed a high quality company, but one with a negative projected annual return (-8.0%.) This is graphically illustrated in the accompanying chart.
While the investing herd is running at full steam and squinting at things “30 feet in front of them” like trying to predict operating results for the next quarter, we’ll continue to focus on a long-term horizon with better visibility. As investors, we have a couple of choices to make. We can don crash helmets and stalk short-term forecasts and avoid straying too far from that ticker tape. Or we can find some good long-term spectacles to focus our vision beyond “30 feet” and avoid the turbulence of daily noise and chaos on Wall Street. I think a good set of corrective lenses with our handle on quality and expected returns is a much better idea and guide.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.