I recently watched a video from Prager University, the online soapbox of Dennis Prager, in which he explained the core differences between liberals and conservatives in America. It came down to their views on how to make the world a better place. Liberals, he said, want to improve the world by improving society. It’s macro, not micro. It’s top-down. By contrast, he states that conservatives want to improve the world by improving the moral character of the individual. It’s micro, no macro. It’s bottom-up.
It reminded me of a similar disagreement in the world of investing. Fundamental analysts are bottom-up people. They think investing success is found in analyzing the business plans and balance sheets of individual companies. Find a company with a good product or service, loyal customers, good management, and good cash flow. Evaluate that company’s prospects for future growth. If it looks good, buy it and hold it for the long term. Pay no attention to markets and all the blather on financial TV and radio shows. It’s micro, not macro.
Opposite the fundamental analysts stand the technical analysts. They couldn’t care less about individual companies. They want to know what the whole market is going to do next, or at least certain segments of it. They analyze moving averages, support levels, resistance levels, and all sorts of arcana to predict whether stocks in general will rise or fall tomorrow, or next week, or next quarter. It’s about predicting investor behavior and riding the trend. They believe the intrinsic value of a particular company is irrelevant, as a rising tide will lift all boats (and an ebbing tide will lower them). It’s macro, not micro.
So who is right? Both of them, actually. It feels strange to say that, as I feel that technical analysis has more in common with playing poker than with investing.But while I remain convinced that the fundamentals rule in the long run, that’s faint consolation to buy-and-hold investors who get croaked in the short run while their market-timing brethren occasionally manage to be out of the market for a big correction. There are times when both approaches contribute to the bottom line.
The same is true politically, by the way. Without the moral improvement of the individual citizen (bottom-up), no amount of legislation can create a just and righteous society. However, it is sometimes the reality of top-down change that confronts individuals with their need for personal moral improvement. The end of slavery and of Jim Crow were top-down affairs. If the country had waited for individual personal growth on these issues to reach critical mass, we’d still be waiting.
In the world of investing, people tend to be exclusively fundamental investors or technical investors. Few can appreciate both. Politically, people tend to play for the liberal team or the conservative team. Few can admit that both sides have occasionally been right at important times. Whichever side you’re on, it’s easy to believe that the other side has nothing meaningful to contribute. We’re more likely to demonize our opponents than we are to dialogue with them.
In Fighting Back, our protagonist Eddie accidentally learns of a major social problem, a hideous injustice going on under everybody’s nose. There are advocacy groups whose mission is to raise awareness of the problem. And numerous organizations lobby government to create more stringent laws to control this problem. This approach is macro, liberal, top-down. Are these organizations good? Important? Yes and yes. But if you were to meet, say, a starving child in your travels, please know that he doesn’t need you to raise the public’s awareness of child poverty, and he doesn’t need a lobbyist. Speeches and candlelight vigils won’t help him, and neither will laws named in his honor. He needs food, and probably medical care. Now.
Eddie gets this. He enlists all the top-down help he can get, but knows that’s not enough. And in seeking a bottom-up solution to the evil he encounters, he just might save himself.
I’m really liking this story. The manuscript is done. The countdown to publication begins.