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Portfolio Strategy

Ignorance Is Bliss...But Bliss Is Expensive

In this article, Cameron Hight breaks down why it is important for managers to gain the ability to ignore unimportant information and focus on what matters in the investing process.

I was reading an excerpt from Seth Klarman’s Baupost investor letter recently and was struck by the similarities that he and most great investors exhibit. They have a “how do they not see what I’m seeing?” kind of attitude. The reason is that humans more frequently ignore information that is painful or doesn’t fit neatly into their current mental model. As the saying goes, “ignorance is bliss”. What makes Seth Klarman, Warren Buffett, Howard Marks, Joel Greenblat, et. al. different is that they have a way of cutting through to the facts that we all know but choose to ignore. These great investors aren’t ivory tower intellectuals. They’re more like the ones that say, “hey, don’t you think it’s odd that the emperor isn’t wearing any clothes?”

Adopting their attitude makes me strive to not ignore uncomfortable information, but it does create a dilemma. If great managers don’t ignore anything, how do they do anything? There is too much information for any human (or computer) to effectively process.

So what really makes a great manager is their ability to ignore unimportant information and focus on what matters. Even if “what matters” is painful or disrupts their current mental model. They are surgical excluders of information. They don’t read every article, they don’t listen to every pundit’s point of view, and they don’t need to know every detail. Great managers are able to amplify the signal and mute the noise.

I have a buddy that works for a “great manager” and I was struck by his account of the interactions between the manager and the analysts on his team. Imagine a group of analysts scattered around a trading desk. The analysts took turns going through the items that they thought were important for the PM to know. The PM would quickly say, “nope, don’t care about that”, “yes, tell me more”, or ask focusing questions to direct the analyst on what was most important. He was an information sorting machine that could split signal from noise in rapid fashion.

To be a great information sorting machine we need practice. Ignoring information is very hard. It starts by turning off distractions like CNBC and the P&L, creating rules to cut down the inbox, and making a concerted effort to say no to information. Yes, you are absolutely going to miss something important, but that mistake will be overwhelmed by the increased time you have available to focus on information that is actually important. Too much information is just another form of ignorance. An ignorance of deep thought and analysis. It may be true that ignorance is bliss, but there is no doubt that it is expensive.

Portfolio Strategy