Friends,

As some of you may know, my brother Sky, has had a long and interesting career on Wall Street. In the process, he has come upon some very interesting – and often quite humorous – observations on the odd – and often incorrect ways that humans seem to be wired – as they think about their money and investing. In fact, he wrote a book about all this called: ‘Bedtime Stories for Capitalists.’ Hilarious – but also quite insightful – especially on the topic of Behavioral Economics and how we tend to make decisions.

Am delighted to be sending along one of his many fun articles below. Please enjoy – and if you’d like to continue to receiving these on a weekly basis – simply click here and he will be happy to add you to the list.

Open Me First!

Remember, the famous “Kodak Moment”? Circa Christmas 1957, 58, 59, 60…? Well, there were two things they did not know, and we do not know. Let’s have some fun with this.

“Open Me First!” was supposed to represent something special on Christmas morning. In 1958, there was an ad that featured children running down stairs to open Santa's gifts. Mostly movie cameras and yes, the iconic Kodak flash cameras. Six models were showcased for 1957. I'll not bore you with details but Argus, GAF, Bolex, etc., all vying for the consumer dollar. (Polaroid? That comes later…). Back then, Kodak defined and was in process of dominating — for a good long while “owning” — the nascent consumer mass-market photography business. Big. To become much bigger as the American consumer began to dispose of that discretionary income…

So did Kodak define the photography market (and its home town) such that no address was needed... if you wanted to send in a roll of film from your new Brownie for processing, you put it in the prepaid iconic yellow envelope: address pre-printed simply to “Kodak”. Country, city, street, number, all unnecessary. To send a letter (the primary means of communication back then) just write Kodak on the envelope; the city (Rochester NY) known by all.

Kodak was King forever, as were innumerable tech giants (each in its day included highways, plumbing, electricity, telegraph, telephone, television…). More recently Atari, Blackberry, IBM. Eventually and inevitably Apple and Google. The stuff of a thousand Harvard Business School case studies, a thousand popular business books. The beautiful, competitive, dangerous but so very productive “creative destruction” that is capitalism.

Our point is, and always will be, that things change. (As we write this, we study artificial intelligence lest Watson eat our lunch).

Atari. 1972. Subsidiary of a French publisher. Nolan Bushnell, born 1943, engineer, created modern electronic video games (remember Pong?) and the modern electronic entertainment destination (remember Chuck E. Cheese?). Recall what Bushnell had: “first mover” market-defining advantage. As had the others. Kodak had it all… except one thing… “Open me first!”

Wait, what do we mean by this? Wasn't “Open me first!” Kodak's own ad line? Yes of course, but I refer to a different sort, perhaps we should call it “Open You First”. In a past edition Jeff wrote about knowing that a strength in excess becomes weakness. They were all King. Sometimes however, the Emperor's success, power and ego grow until he wears no clothes.

We can’t resist going back to Wall and Broad Streets. No one is a good investor or trader until they understand themselves… know yourself first… warts and all… especially warts …beauty marks taken to excess. Let others open their gifts first. Witness others with humility. You got to open you first and take notes. Read those notes, often. When it comes to investing—style is immaterial here, quantitative, empirical, gut feel or whatever — do not even begin to analyze external things until you “Open You First”. Otherwise, how to know the mistakes you will make?

It is Christmas morning, 1957. It should always be Christmas morning, 1957. Open yours first. Then watch and enjoy, as the others are gathering, you are the one with the camera, the history observer… Watch. And learn. Did we ever learn more from talking than from listening?

Remember our friends Morris (“Mo”) the momentum investor, and — on the other side of the world — his counterpart Valentina (“Val”) the value investor (“Identity Crisis”, from Bedtime Stories for Capitalists)? Their styles could hardly be more different. At any given moment, looking at the exact same security, they likely would have opposite opinions. One would buy, the other sell. Yet we showed how both make money doing it. Because they knew who they were. Because they never forgot who they were. As the Bard said, “Know Thyself”.

So open you. Know who and what you are… Then let others open themselves. They will, I assure you. We can go into the psychological effect of investing forever. Books, perhaps more importantly academic research and “white papers”, perhaps most importantly empirical research and real-world experience, all are packed with information — and some of it actually has efficacy! But until and unless we, “Open You First!” we're unlikely to listen, and observe, and — more the shame — never learn. 

SKY M LUCAS,

PO BOX 330  SUNAPEE NH 03782 USA