Howard marks in his Memo while issuing a warning, mentioned the word, ‘Trend Following’. He said,
We know that “retail investors” tend to be trend-followers, as described above, and their long-term
performance often suffers as a result.
It is amazing how Value babas use the term trend following ever so loosely. .
This is the functional equivalent of someone saying.
We know that “retail investors” tend to be value investors (buying falling knifes) and their long-term performance often suffers as a result.
Both the statements are correct, however, the use of the term ‘Trend following’ and ‘value investing’ is WRONG.
Just like catching falling knives is NOT value investing, similarly, panic buying at tops is NOT trend following.
Nobody is a bigger fan of trends than Charlie Munger himself. His entire investing philosophy hinges on catching BIG societal trends with psychological underpinnings. (Ofcourse, he is not looking at price action, but you get the drift)
Apple purchase by WB is the best example of riding the trend.
The ONLY DIFFERENCE between value i̶n̶v̶e̶s̶t̶o̶r̶ ̶, first of all, let’s call them traders, coz part of the problem is that utopian sitting on a higher pedestal, larger than life, holier than thou self-image where they think they are in the industry for some greater good and not just money.
The ONLY DIFFERENCE is the period in which they are trying to catch the ‘MOVE’. NOTHING ELSE. Trend followers wait for confirmation and join the train when its moving, whereas value investors board it from the other side while it is going in the opposite direction, pre-empting that it will reverse in the next station or next to that or in next 3 years. Make no mistake, they are playing for reversal, without which they won’t be in the markets.
Ofcourse exits are different as well and therefore PAYOFFS are different too.
Bottom line is, that everyone is in the market to make money and is confined/enhanced by their brain capacity, influences, psychological and emotional quotient, conditioning, and personality limitations.