“Mimicking the herd invites regression to the mean.”

Charlie Munger

Why Unconventional?

In the investment industry there is significant occupational risk by being different. Investment analysts commonly publish forecasts close to the consensus, or herd. They do this to protect themselves fromĀ making a forecasting mistake. Analysts fear their forecast mistake will be greaterĀ in magnitude than the error for the average analyst in the market. If they are wildly wrong once, they will lose their jobs. But, if everyone is wildly wrong, then there is less a chance they will be all fired.

Money managers also herd to protect their jobs. They have an obligation to invest client money wisely but are more comfortable turning in average results, whether it be good or bad, because there is a lower possibility of being fired by being average. The fear of failing through unconventional methods is so strong in both the analyst and money manager communities that it keeps many from trying and achieving superior investment results. This then creates opportunities in unpopular investments for those who dare to be different.