- Christian Armbruester
The Blind Chicken
I think we can all agree that markets can go up and down. The trick is to buy things when they are at the bottom and sell them when they are at the top – which seems an entirely plausible thing to do. After all, we have so many wonderful tools to help us assess where we are in a particular cycle of supply and demand. But then we discover, that it is actually very difficult to draw conclusions from the past. The charts, macroeconomic analyses and numbers we use to make predictions about the future work some of the time, but none work all of the time. Which leaves us with the ultimate dilemma: what to do in uncertain times?
As always, the answer is plain for everyone to see, but we keep trying to go against the odds in the hope of adding value in some form or another. So, let’s think this through, apply some reasoning to the whole thing, and see what conclusions we may draw.
Say, we really like the chicken business – this is now where the reference to the picture of this post comes in. In German, we have a saying that “even a blind chicken can sometimes find some corn”, which doesn’t really translate into English all that well, but essentially means “even a broken clock is right twice a day”. But back to our investment theme and putting an oversized allocation of our capital into chicken farms, distribution businesses and restaurants. There is a lot to like here, rising consumer demand, steady production costs and sustainable margins through vertical integration. Heck, just think if every Chinese person just eats one more chicken per week, imagine the growth potential, and don’t forget the long-term macroeconomic forces at work here with emerging markets industrialising and increased spending on food.
Great, but by allocating more to the chicken investment, we are also not buying the technology theme, the aging population trend, healthcare, renewable energy, blockchain, bio-tech or impact investing, and have I mentioned the fishing business? That’s right, we would have to take a view on all of these things as well, because by not investing in them, we are also de facto betting against them. Which could also mean potentially losing out on huge returns that we would not be able to achieve just by being in the chicken business. The thing is, we could even be 100% right about investing into chickens, but then we also have another problem: when is the right time to buy in and, ultimately, sell out? That’s called “timing” and it is widely accepted that you may be able to call it right, but you have to get lucky to cash in your chips.
The fact is, trying to outsmart the markets and picking stocks is pure entertainment. People always seem to point to their winners more than their losers, but ultimately it is a numbers game and they don’t lie. It is a brutally efficient world where “no one beats the market”, “the market is always right”, “the market can stay irrational for longer than you can stay solvent” and of course it is “a random walk”. These are all things we know from many years of empirical evidence and scientific studies. It is also what we teach in our textbooks as part of financial theory. Until further notice, if we can’t even get the weather right, how the heck are we supposed to call the most intricate, complicated and quite possibly the most utterly efficient man-made creation on earth, that are the global financial markets?