Nov. 25 (Bloomberg - Chet Currier) -- A yawner of a year in the financial markets? Don't complain too much.
Excitement may be the enemy when you're trying to manage money -- and boredom can be an investor's good friend.
The sexier a stock or other financial proposition appears, the more likely it is overpriced. If you're looking for a bargain, search out things that offer nothing to tickle your fancy until you look below the surface.
These old contrarian ideas can be more relevant than ever in the modern world of ceaseless sensory stimulation. To judge by all the behavioral evidence, the average human attention span is at a record low.
``We are attracted to companies that are complicated, dull or unglamorous,'' says Chris Davis, manager of the $31.2 billion Davis New York Venture Fund, which has averaged an 11.7 percent annual return over the past 10 years through October against a 9.3 percent-a-year gain for the Standard & Poor's 500 Index.
``Insurance and gravel may not be spicy, but companies like Geico (now part of Berkshire Hathaway) and Martin Marietta Materials have sure produced exciting returns,'' Davis says in his latest shareholder letter. ``There are not too many brilliant 25-year-olds who graduate from the best universities determined to study the ins and outs of insurance or gravel. This relative lack of analytical scrutiny may help us gain some advantage in studying these businesses.''
Just Stand There
The principle applies in many different ways. The impulse to action, instead of plodding patience, may cause as much trouble for investors as any other human failing.
``Most investors, particularly supposedly professional ones, overtrade their portfolios,'' writes Tim Price, senior investment strategist at London money manager Ansbacher & Co. Ltd. ``One of the pressures to overtrade is psychological: The grass is always greener in another stock. Another pressure to overtrade is the financial services industry itself.''
In this environment, sitting tight often takes more courage and conviction than rushing hither and yon in a frenzy of buying and selling. Something about human nature makes a hired manager especially subject to being fired when he isn't doing much of anything just now.
The problem is only complicated by the learned desire of 21st century homo sapiens to be endlessly entertained. In a recent study on the subject of asset allocation, New York money manager AllianceBernstein cites a continuing need to ``unwind the short-term, performance-chasing investment culture of the 1990s.''
High Stakes
Asset allocation, or the choice of how to spread one's money among categories such as stocks and bonds, holds the key to investment success, Alliance says. But in a recent survey, more than half of all advisers say their typical client would be more likely to explain the rules of Texas Hold 'Em poker than the principles of asset allocation.
Well, that's really not so strange. Texas Hold 'Em inherently makes much better drama. As hungry as cable TV may be for new material, Celebrity Asset Allocation shows remain rare.
Some evidence exists that asset-allocation consciousness is on the rise already. Witness the popularity of ``allocation'' mutual funds, which in their various hybrid stock-and-bond forms attracted $70 billion in net inflows from investors through the first nine months of 2005, according to consultants Financial Research Corp. in Boston. That's a whopping share -- one half -- of all the net new money that funds have attracted this year.
Professional Help
Likewise, witness the long and steady shift of investors to owning stocks and stock funds through brokers, financial planners and other go-betweens rather than buying direct from fund management firms.
More than three-quarters of all U.S. investors who own shares outside retirement plans use a professional adviser, according to a survey just published by the Investment Company Institute and the Securities Industry Association.
That puts a great deal of the onus on these intermediaries for increasing awareness from here on out. Many an employer- sponsored 401(k) retirement plan, for instance, ought to do a much better job of laying out the choices. If the story is told right, boredom shouldn't be a problem.