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what's going on investors ak4 fowler here and today we're gonna talk about the importance of big-picture thinking and investing and hopefully with this video it will help you get out of the minutiae and help you think big which is really gonna help your returns now the example we're gonna use for this video is Joel Greenblatt now Joel is a very famous value investor who wrote a book called the little book that beats the market and that book made the magic formula that he created for value investing very popular as well he also created the value investing club website and he's a professor at Columbia's Business School so in his classes at Columbia he often talked about how he was only average at valuation work he wasn't that amazing at valuing companies he had just a little bit of edge there what he was actually really good at and where he had a lot of edge was putting a bunch of information into context he was good at viewing the bigger picture and pinpointing what actually mattered here's a quote from him explain the big picture your predecessors MBAs failed over a long period of time it has nothing to do about their ability to do a spreadsheet it has more to do with the big picture I focus on the big picture think of the logic not just the formula it is so important to focus on what's important to many investors just get lost and small my new details that don't actually matter the last thing you want to do in investing is focus on the trees so hard that you missed the forest and there's a lot of different ways this happens in the markets so take value investing for example in value investing a lot of the edge and the calculation is to value something has been eaten away a computer does it pretty easily we actually talked about this in a previous video about the old style of value investing not working anymore if you haven't seen that link to it above so a problem I see with a lot of new investors is that they get obsessed with small small details in their analysis so for example they come out of school learning how to use Excel and they keep plugging in numbers into their spreadsheets and they're so excited when it spits something out are the spreadsheet calculations actually spitting out anything important they could be used to make money in the market well usually it's not at least for the beginning if you want to see an example of this just jump on seeking alpha and look at the comments underneath the articles these guys debated every small detail that doesn't even affect the overall investment thesis the most successful guys are thinking beyond just these numbers there stuck in that myopic point of view like Joel Greenblatt said they're looking at the bigger picture and trying to fit the pieces together another place where this happens is with trend traders so maybe they stumble upon a really great trend and if you see a really great trend you should be able to make a lot of money out of it right but know what these guys end up doing is try to snipe their entries and exit and trade around the trend and in doing so they just end up over trading and missing a majority of the money and their mentality there is that okay if I can just trade this perfectly get in of exactly the right time and get out at the right time it can make a lot more money why do I have to sit through all these dips but again they're focusing on the wrong thing you shouldn't be trying a short-term trade every dip and rally the big picture is the big print you need to put yourself in it and be patient and sit on your hands so another thing that Joel said that's interesting is that you need to focus on the logic and not just the formula now this really applies when it comes to quants one of the biggest problems with back-testing is when you overdo it and find some random correlation that ends up making money but the problem is if you just back tested data like that and found something it doesn't always mean that thing is a robust oftentimes it blows up and leaves you enough and that's the whole issue with data mining so the best clients when they're coming up with new strategies is they're starting with something that makes logical sense they're breaking it down to the first principles and then seeing if the data supports what they thought they're not just mining data trying to find some random correlation they think deeper and try to look at the bigger picture of why something would work now in some ways markets are always changing right I mean there's new assets new strategies and new technologies all the time I mean technology is always changing so there's always gonna be new markets and new strategies so if you want to focus on the big picture of markets in general then you need to drill down to the principles of markets that don't change so for example one of the reasons why we talk about psychology so much on this channel is because that's one constant even as the markets continue to change markets are created by humans interacting and human psychology doesn't change so you're better off focusing on the big picture which is the human psychology and learning how to understand that so what are you focused on in your training are you looking at the big picture are you stuck in the details let me know in the comments what you think is the most important part to focus on in your process if you haven't already make sure you subscribe to this channel and hit that Bell for notifications new videos we publish about three a week all market and business related so subscribe and I'll see you in the next one they fell out there bye
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