Top 50 Microcap Investor List: Edwin Dorsey
For this week’s Top-50 feature we present Edwin Dorsey, the Bear Cave newsletter’s sole author. The Bear Cave newsletter “provides analysis, commentary, and curated links on the short world. Every Sunday the free newsletter covers new activist short campaigns, SEC Enforcement actions, and shares some exclusive research.” Meanwhile, paid subscribers “receive two well-researched, off-the-beaten-path ideas.
Read our feature on Edwin Dorsey here
Hindsight
“It is an iron rule of history that what looks inevitable in hindsight was far from obvious at the time.” —Yuval Noah Harari (“Sapiens: A Brief History of Humankind”)
We’ve recently found ourselves reflecting on the quote above. We mentioned Harari’s quote last September when asking ourselves whether the high valuations and speculation in the stock market might end in the same fashion as similar episodes of market euphoria. But recent world events have us thinking about it again.
“The hindsight bias is not a conscious process. If we knew that we were exaggerating the predictability of an event, it seems unlikely that we would do so…. Rather, this change of perspective happens quickly and nonconsciously.” —Timothy D. Wilson (“Strangers to Ourselves”)
Few people thought that the long, major wars of the past would unfold that way beforehand.
Few people thought that the long, major depressions of the past would unfold that way beforehand.
Few people thought that the long, major inflations of the past would unfold that way beforehand.
Our mind has evolved to convince us that things were more predictable than they really were at the time. Maybe that evolution has occurred so that we’ll remember the lessons more vividly after-the-fact. Or maybe it’s so that we don’t beat ourselves up too much for not being able to see something coming before it arrived (“I’ll get the next one.”). Whatever the reason, it happens again and again.
But there’s a flip side to the above. Once we have an explanation, we tend to extrapolate that story and see future events as likely to happen the same way. Every conflict can become a World War. Every big recession can become worse than the Great Depression. Every inflation can become a hyperinflation.
The truth is that we don’t know. We can’t predict how things will unfold, although plenty of people will try.
From an investment perspective, even if you could predict how major world events would unfold, it may not help your returns. The market during the Great Depression hit its low point in 1932. If you knew the Depression would continue to last and you knew that World War II was lurking on the other side, would you have had the courage to invest even with that foresight?
There are always things to worry about. There are always things to keep you from investing if you let those worries dictate your actions. But that worry can be a major detriment to your long-term returns if you let it guide how you invest. As Warren Buffett said at the 2007 Berkshire Hathaway Annual Meeting:
You can freeze yourself out indefinitely. So any time we find something that we think is intelligent to do, we just do it, and we hope we can do it big.
Keep moving forward. Keeping looking for intelligent places to allocate your capital. Stocks are cheaper than they were at the beginning of the year, and there are substantially undervalued companies out there to be found.
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