Doug Kass and Market Noise

Doug Kass, a frequent guest on CNBC and general partner at Seabreeze Partners Management, has made a call that the market has made a low for the year. He may be right.

The Internet and cable networks are full on a daily basis of these types of market calls. In order to be correct, a market prognosticator needs to be correct not only about short and medium-term economic fundamentals but also about market participants’ mass psychology. Can anybody do this on a consistent basis?

The world pays attention because the majority of market participants are speculators not investors. What’s the difference? If you’re a speculator you’re focused on trying to figure out what the price of a given security is going to do in the short term.

If you’re an investor, you’re focused on doing deep fundamental research and finding a situation where the value you receive in making the investment is greater than the cash you invest. Moreover, the payoff more than compensates you for the risk that you are taking. An investor generally has no idea when the market will recognize the under-appreciated value in his investment. He doesn’t overly fret about this because the timing – absent a clear catalyst – is generally not known.

The majority of the world gravitates to speculation because its generally viewed as the path to fast money. If your money manager is in this school, he appears to have super insight into the future – one that is worth a lot of money. Who wants some old-school money manager who just picks a group of boring stocks and sits on them for five to ten years?

The problem with this thinking is that the evidence shows that the real wealth has been generated by true investors.

So why bring up Doug Kass? I have no beef with Mr. Kass – he seems like a very sharp person. The reason I bring this market call up is that as investors you have to be vigilant not to come under the influence of all the noise that is out there. If you’re an investor, it’s not your game. You need to approach it like you would if you had a chance to buy a great business in your city in a private transaction.

What types of things would you be thinking about? I don’t believe it would be whether the markets had made a low for the year.


2 thoughts on “Doug Kass and Market Noise

  1. Bill Cross

    Thanks for the insight. As a fairly new investor, learning how to block out the “noise” (media hype) has been a significant challenge. However, utilizing priciples of value investing has helped me to focus on long term investment goals rather than speculative immediate profits.

  2. Jim Allen

    Walter Schloss, one of the Superinvestors of Graham and Doddsville, avoided talking to analysts and going to shareholder meetings, etc. I can imagine that he avoided watching CNBC, et al, too. He remarked that Wall Street salesmen are too good at talking you into doing something foolish, so he avoided all that.


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