Slow-Moving Ideas
Let us now turn our attention to the role of information. The information we require speaks to the subject of this article, i.e., patience---and the value of a "slow-traveling ideas."
Many readers may not know Jack Treynor. But he is an intellectual giant in the field of financial management. First trained as a mathematician at Haverford College, he graduated with distinction from Harvard Business School in 1995 and began his career in the research department at Arthur D. Little, a consulting firm. As a young analyst, Treynor generated 44 pages of mathematical notes on the issue of risk while on a three-week vacation in Colorado. A prolific writer, he eventually became editor of CFA Institute's Financial Analysts Journal.
Over the years, Treynor swapped papers with many of the leading finance academicians, including Nobel laureates Franco Modigliani, Merton Miller, and William Sharpe. A number of Treynor's articles won prestigious awards, including the Financial Analysts Journal's Graham and Dodd Award and the Roger F. Murray Prize. In 2007, he won the prestigious CFA Institute Award for Professional Excellence. Fortunately, Treynor's writings, which were once loosely noted, are now available in a 574-page volume titled 'Treynor on Institutional Investing.' It deserves a place on every serious investor's bookshelf.
My copy is a bit dog-earned and tired looking, because several times a year I reread my favorite parts. Tucked near the back, on page 424, is my favorite article---"Long-Term Investing." It first appeared in the May-June 1976 issue of the Financial Analysts Journal Treynor begins by talking about the ever-present puzzle of market efficiancy. Is it true, he wondered, that no matter how hard we try, we'll never be able to find an idea that the market hasn't already discounted? To address the question, Treynor asks us to distinguish between "two kinds of investing ideas: (a) those whose implications are straightforward and obvious, take relatively little special expertise to evaluate, and consequently travel quickly and (b) those that require reflection, judgement, and special expertise for their evaluation, and consequently travel slowly."
"If the market is inefficient," he concludes, "it will not be inefficient with respect to the first kind of idea, since by definition the first kind is unlikely to be misevaluated by the great mass of investors." To say this another way, the simple ideas---price-to-earnings ratios, dividend yields, price-to-book ratios, P/E-to-growth ratios, 52-week-low lists, technical charts, and any other elementary ways we can think about a stock--are unlikely to provide easy profits. "If there is any market inefficiency, hence any investment opportunity," says Treynor, "it will arise with the second kind of investment idea--the kind that travels slowly. The second kind of idea---rather than the obvious, hence quickly discounted insight relating to 'long-term' business developments---is the only meaningful basis for long-term investing."
You have, I'm sure, already realized that the investment tenets outlined in The Warren Buffett way are the ideas that "travel slowly" and that relate to "'long-term' business developments," and thus are the basis for "long-term investing." Let's be clear: The slow-moving idea is not intellectually difficult to grasp, but it is more laborious than relying on the "straightforward and obvious."
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