As Christopher Nolan’s new telling of ‘The Odyssey’ hits movie screens across Britain, I’ve been pondering what its hero might be able to teach us about investing, at a time when markets, in my view, are overheating.
When share prices are rising at what seems like a remorseless pace, it can be tempting to wade in and buy, for fear of missing out.
In the classic Greek legend, Ulysses (the latinised version of Odysseus) is determined to hear the song of the sirens but knows it will hypnotise him into acting irrationally, leading to his doom.
He makes what has become known as a ‘Ulysses pact’ with his crew. They strap him to the ship’s mast and then block their ears with wax. Ulysses is able to hear the sirens’ alluring though deadly singing but the crew sails to safety – for a short while, anyway.
So how do you resist the siren temptation of markets and psychological biases?
I learned a long time ago that the only way was to sign my own Ulysses Pact by creating a process that is 80% systematic and 20% subjective.
Our SmartGARP stock-screening tool analyses criteria such as growth, valuations and changes in profit forecasts. It essentially mimics what most fund managers say they do (although I often wonder whether they actually do so, in practice).
If you gave someone two stocks – a fast-growing one and a slow-growing one – they would, in all likelihood, choose the fast-growing company. If you offered them a cheaper company or a more expensive one, they’d rather buy the cheaper one. And if you asked, would you rather own a stock generating good news or bad news? They’d go for the business with good news flow.
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