"Those who have knowledge, don't predict. Those who predict, don't have knowledge," the Chinese philosopher Lao Tzu said over 1,500 years ago. While the ancient father of Taoism was able to acknowledge the utter unpredictability of life, the modern world, especially the financial one, is overflowing with forecasts, as well as the fears that often go with them.
While many on Wall Street are currently frozen with uncertainty until the ongoing government shutdown and debt ceiling battle are resolved, money manager Andrew Wellington, chief investment officer at Lyrical Partners, isn't one of them.
"Sorry to disappoint you," Wellington says in the attached video, "there's just nothing we can do about it. At some point it will get resolved and I think six months after that people are going to be worried about whatever the next thing is, and whatever is going on now will be largely irrelevant."
So much for Washington's claim of being the world's axis of influence!
What's better than Wellington's grounded embrace of reality is the fact that he is kicking the manure out of his peers and comfortably beating a market that's been on a four-and-a-half year tear. Not by convincing himself that he is smarter than everyone else and can see things others don't, but by sticking to his knitting and not getting distracted by the noise.
"You have to make sure the stocks that you own are largely immune to the consequences of what's going on down there," he says, before quantifying himself slightly. "The government is far reaching so nothing is perfectly immune."
He begins his quest for companies by asking himself the following rhetorical (almost Taoist) question. "What would you want to own if you had absolutely no idea what is going to happen to the world over the next five years?"
Specifically, the manager of the Lyrical U.S. Equity Value Fund says he looks to find businesses that can adjust to surprises and lower their costs or raise prices as needed. But these companies also have to be cheap too, because part of Wellington's stock picking success comes from buying good companies that are also at good prices.
In doing so, he is essentially protecting himself from his own prognostication, or mistakes in his own forecasting.
"Anytime you have forecasts, you're going to be wrong," he says, noting that investors need to make sure they get a nice discount to allow a margin of error "so when you get a few things wrong it can still be a decent investment."
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