Rudi’s View: Between Perception & Reality

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Nov 15 2023

In this week's Weekly Insights:

-Between Perception & Reality
-Conviction Calls & Best Ideas

By Rudi Filapek-Vandyck, Editor

Between Perception & Reality

Probably the biggest surprise I have come across over the past year or so is the observation that so many investors are firm believers in the 'Market Knows All' narrative; this idea that share price moves are highly efficient, because someone out there, on the other side, hiding in obscurity, knows something you and I are as yet not privy to.

Yet most of us will specifically refer to sentiment, bullish and/or bearish, and money flows when we discuss markets generally. It's as if we have decided that trends and moves at the macro level occur through a two-way loop with human group sentiment, but at the individual stock level it all boils down to specific knowledge by those in-the-know.


I've long held the belief the concept of the efficient market thesis was dreamt up by an academic who would observe and judge financial markets from afar. More than three decades of watching share prices move up and down has only galvanised my conviction.

To illustrate what's going on inside financial markets, my favourite parallel is with the Olympic games. Look to your left and you might see an athlete trained in weight lifting. The one on your right looks more like a swimmer or a future champion in gymnastics. Behind you stands a golfer and the back you see in front is that of a rugby sevens player.

The difference with the Olympics is all of you are competing in the same playing field, at the same moment, every single day. Which is why my favourite market description is:

The share market will eventually do the right thing, but not before it first has tried out all other options.

Goes without saying: we never ask further questions when the share price moves in our favour (that's our intelligence being rewarded). Plus, yes, the concept of holding on to your shares when the trend is bending south is not something we are naturally wired for.

Volatility only equals risk for the short-term trader who cannot "risk" the trend moving in the opposite direction, but coping with a falling share price triggers feelings of guilt and failure from most of us.

We have been "wrong", apparently. And the market, well, the market is always right, isn't it? Even if this means that kicking a rugby ball on the seventeenth green has prevented the golfer behind you from shooting a birdie.

In all fairness, sometimes the market is truly telling us we are wrong, at least in the here and now, while other times it is simply being silly and mercurial. And while share prices should not be front of mind constantly -all the legends in the industry tell us it should not be- our human brains are naturally wired for 'momentum', thus share prices guide our perception, our views, even our forecasts and expectations.

To paraphrase the legendary Peter Lynch: the share price of a company should be the least concern for investors, yet it attracts the most attention. Share price down means it's a bad proposition. Share price up equals great management, running a fantastic franchise, and killing it.

Let's not beat around the bush: we've all been guilty of allowing the share price to colour our mind. Most of us would pay heed to Lynch's motto: "know what you own, and why you own it", but that's so much easier when the market follows the script we have in mind.

Nice one, Rudi, I suspect some of you are thinking now, but where exactly is this leading to?

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