A fallacy of modern retail investing is the presumed notion that since many larger-than-life companies like Apple (AAPL) or Amazon (AMZN) present an unlimited number of analysts covering their every move, it is impossible or extremely unlikely for the average retail investor to have any type of informational advantage over said analysts.
Why do I believe this to be a fallacy? Most of the academic tenets of market dynamics and economics are not completely accurate because they begin with the notion that market participants act rationally. All the time I hear that the market is driven by fear and greed. Neither of these emotions are rational precursors for making intelligent economic decisions.
The truth I found evident is the fact that you don't need an informational advantage to generate solid returns, just an emotional advantage.
I read a clever article by Paulo Santos the other day titled "Denial Ain't Just A River In Egypt" that hit this topic squarely on the head. I will not continue to beat a dead horse here. I will, however, provide a recent and relevant example of this fallacy in action.
Intuitively, this would not seem a possibility if the market was singularly based on pure efficient mathematics alone. If this was the case there is no way we would have seen the types of ridiculous pricing in the market over the past few years.
As Albert Einstein keenly stated, "as far as the laws of mathematics refer to reality, they are not certain; and as far as they are certain, they do not refer to reality."
Take Apple for example. There is no shortage of bloviators on this topic and its every move is dissected on every form of media on the planet. Any person with a little intuition and 3rd grade math could see Apple was unfairly valued prior to earnings relative to free cash flow when you netted out the extra cash on the balance sheet.
It had also been relatively cheap since the Summer of 2011 prior to the parabolic run-up, but if you had listened to the majority of the aforementioned media outlets, you were likely too apprehensive or scared to put the lions share of your portfolio to work.
So what if they have the undeniable most significant tech platform invention since the Internet. So what if they own music distribution. The economy stinks and little Johnny might not get the new iPhone or iPad.
Look, I know Steve Jobs died. I was critical of Cook initially, but I am learning the impact Jobs had on this company did not leave with him. The stock is again falling towards pre-earnings levels. If you can tune the media out and be guided by simple logic, you won't need an informational advantage.
"Poor Faulkner. Does he really think big emotions come from big words? He thinks I don't know the ten-dollar words. I know them all right. But there are older and simpler and better words, and those are the ones I use." - Ernest Hemingway
To put this in Buffett terms, there are no extra points awarded for difficulty in investing.