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Oppenheimer Holdings Inc. Message Board

  • superbmomentum superbmomentum Nov 8, 2012 10:10 PM Flag

    The Hedgehog and the Fox

    There is an analogy particularly suitable for what is going on with Financial companies: the ideas of the hedgehog and the fox interpreted by philosopher Isaiah Berlin, which he uses to describe two main schools of thought.

    The hedgehog: "relate everything to a single central vision, one system, less or more coherent or articulate, in terms of which they understand, think and feel – a single, universal, organizing principle in terms of which alone all that they are and say has significance"

    The fox: "pursue many ends, often unrelated and even contradictory, connected, if at all, only in some de facto way, for some psychological or physiological cause, related to no moral or aesthetic principle; their thought is scattered or diffused, moving on many levels, seizing upon the essence of a vast variety of experiences and objects for what they are in themselves, without, consciously or unconsciously, seeking to fit them into, or exclude them from, any one unchanging, all-embracing, sometimes self-contradictory and incomplete, at times fanatical, unitary inner vision"

    To me, those who look at financial companies and see only one main issue, now a days it’s the Fiscal Cliff or more Regulation, are misled. If the executive can operate in such a way that before the event goes mainstream, he thinks like a hedgehog, along "big picture" lines with a single idea that he knows will capture the public’s attention. While subsequent to the event becoming mainstream, change his mental framework to that of a fox, constantly probing, questioning and analyzing, routinely searching for different viewpoints on the evolution of the financial industry, then, he probably would be very successful. "Big picture" issues usually capture huge gains if envisioned timely, while constant post-mainstream awareness they start monitoring along various news fronts provide the best kind of risk management. Somebody I respect once said that the mark of a first-class brain is the ability to entertain two conflicting viewpoints in one's head and function properly with them; the executives who can think like the hedgehog prior and the fox afterwards, would fulfill, this ideal.

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    • So how does one think like the Fox? Here's two examples to ruminate....

      Two banks are presented with the idea of selling umbrellas:

      The Hedgehog bank does extensive research spending their time figuring the most profitable time of the year to maximize profits....they figure the best time to sell the umbrellas is on the most rainy days...

      The Fox-like bank on the other hand would not spend too much time researching precipitation, rather they would look for ways to maximize profits through diversification! They would sell the umbrellas cheaper than the hedgehog but would ask that they would loan back the umbrellas to the bank on the months with the least amount of rainfall. Then find a geographical location with the inverse seasonality i.e. when it's winter in one part of the world, it is summer in another part of the world..and repeat the offer....

      Two banks are presented with the certain probability of a flat stock market 7 months from today:

      The Hedgehog bank avoids the stock market. Why risk your money if you're getting no returns?

      The Fox-like bank on the other hand would take that information and try to maximize profits. Sell the market whenever it moves above the price target, buy the market whenever the market trades below the price target!

      ....to be continued....

      • 1 Reply to superbmomentum
      • continued from my previous message....7 months ago....

        So when examining the YTD return of the US Market it looks like a strong performance of over 14% return....so the Hedgehog's performance is quite good....but how did the Fox-like approach fare?

        While the Hedgehog avoided the international stock market, the fox outsmarted him.....by taking the info of a flat international stock market, in the past 7 months it made a maximum profit by diversifying away from the US market. The MSCI All Country World ex US index is flat YTD!! By selling above the target price and buying below the target price.....the fox outwit the hedgehog....

 
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