by Noriyuki Morimoto
An investment is a calculation of the value of an asset based on conservative assumptions and reasonable estimation techniques. Investment is an analytical judgment of value, never a price prediction. Price projections are speculation. “Never predict” is an important discipline in the world of investment.
To remain strictly within the framework of rational value judgments is, expressed philosophically, to not talk about what cannot be talked about. Fluctuations in value can be talked about, but not fluctuations in price. Price fluctuations are something that must be accepted in the execution of a transaction, and never the subject of control in investment decisions. Preserving value and avoiding damage to value are investment decisions that are subject to investment management.
The problem is that while price volatility cannot be explained, it is the cause of a great deal of anxiety. What can be done about unexplainable sources of anxiety? Unexplainable means, for instance, that even if several people engage in full discussion, they cannot reach a reasonable consensus. Hundreds of discussions and no conclusions. However, the reason we are discussing it is because we are anxious.
The only way to escape the unexplainable anxiety is to stop investing. When it is not possible to explain, i.e., when it is not possible to form a rational investment decision, the investment is not viable. When uncertainty is increasing, stopping an investment may result in a realized loss. However, this is not an investment loss resulting from an investment decision, but the cost of continuing the investment. It is the cost of maintaining investment discipline.
That said, there is another, more advanced solution. It requires a state of mind that is difficult to obtain. It is not to worry about price fluctuations. If one is confident about their judgment of the value of their investments, a price decline is often an investment opportunity. There is no anxiety there. This is a state of mind that only true investors can have.
Those who have reached such a state of mind are conservative investors who adhere to a strictly rational framework of value judgments. Therefore, anyone can potentially reach this advanced state, if he or she is diligent in mastering the art of artisanal value analysis and adheres to a strictly conservative discipline.
[Category /Investment Philosophy]
Chief Executive Officer, HC Asset Management Co.,Ltd. Noriyuki Morimoto founded HC Asset Management in November 2002. As a pioneer investment consultant in Japan, he established the investment consulting business of Watson Wyatt K.K. (now Willis Towers Watson) in 1990.