ego and the stock market thus are similarly fragile. the bigger the ego, the more percentage of self perception is based off of future expectations rather than reality. a big ego is a bubble. it can pop, leading to depression.
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what this means for the value investor is that they should seek to buy things that have underestimated growth potential or underestimated time horizons. this is not simply to buy companies that have no ego. it is to buy companies that have a HEALTHY ego.
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ego is NOT bad. projecting into the future and having some sort of plan is good. the only way to optimistically believe in yourself is to first HAVE a self.
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internally a healthy ego is confident while externally underestimated. an unhealthy ego is either arrogant or internally underestimated (anxious, depressed, etc...)
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a depressed ego never grows because it can't believe in a future. an arrogant ego is pricing itself too much into the future. it's like taking out a huge line of credit and feeling rich instead of in crippling debt.
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a bubble popping is when the story of the future encounters something it can't integrate. the STORY pops taking out all of the present perceived value because so much of that value was stored in the future story.
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this model can then lead to a new type of rebalancing philosophy. older philosophies include ideas like: 60/40 stocks bonds or 1:1:1:1 stocks:bonds:gold:cash or long volatility vs short volatility
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in this newer philosophy a portfolio is like a ship, sailing into the unknown. when the seas are rough, you rebalance into things that have value mostly in the present. when the seas are calm, you can let down the sails and increase speed.
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when seas are disastrous what you want are things that have a strong expected future. iphones may die but corn will be eaten. governments may fall but gold will always be shiny.
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this last technique is like abandoning ship for the lifeboats. the point isn't to grow but to survive, 0% at best. trying to grow in a disaster is like saying "if a nuclear war happens along with an alien invasion and a giant meteor, what stock do i buy to be rich?"
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just like managing ego, the key is simple but constant observation of how much of present perceived value is present vs expected future. and just like the rustling leaves announce the presence of wind, Contact With Reality is the only way to know this.
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a mark of maturity is an active sense of declining abilities and the specter of looming death/impotence. a limited future horizon prevents ridiculous valuations like "i just graduated college and learned some programming, i know how to fix the company and also the world."
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End of conversation
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