Legend

 

Conversation with Henry W. Dunn

Henry W. Dunn: Ah, a new century! How fascinating to see the investment world evolve– yet some themes remain frustratingly persistent.

Investment Professional (Sarah Kim): Indeed, Mr. Dunn. It seems human nature desires shortcuts to wealth, even when experience proves them unreliable. Your writings are remarkably prescient.

Dunn: Thank you. Though the language of markets has changed, I recognize the same Persistent Delusion” – the overweening confidence in stock market forecasting.

Kim: Interestingly, while traditional chart analysis seems less prevalent, ‘technical analysis’ now wields vast computational power. Machine learning and algorithms- surely such tools bring us closer to predictive success?

Dunn: Closer, perhaps, but I argue that it is not close enough for truly sound investing. Machines may crunch data, but do they capture the nuance of human behavior, the sudden upheavals that drive markets? Forecasting hinges on the idea of discernible patterns, while markets thrive on defying them.

Kim: There’s truth in that. The unexpected does have a way of wreaking havoc on models. Yet, some forms of quantitative analysis DO seem to deliver an edge…

Dunn: An edge, at times, I’ll grant you. But is it sustainable? Can anyone claim to foresee turns and pinpoint the optimal time to buy or sell? That’s where most get tripped up. The illusion of precision lures them into speculation masked as analysis.

Kim: I appreciate your distinction between investment and speculation. Yet, even your ‘pure’ investor can benefit from market swings, can’t they? Buying undervalued stocks, or even anticipating ‘growth’ trends… it’s not pure forecasting, but it does incorporate an element of timing.

Dunn: You’re right. Market forces often reward savvy decisions based on both fundamental and timely decisions. Yet, that timing must still have its root in long-term valuation, not the belief that next week’s dip or rise is knowable. My emphasis on sound principles remains steadfast.

Kim: There, we fully agree. But where do we go from here? If even sophisticated investors find the lure of the short-term hard to resist, how can the profession foster the long view you champion?

Dunn: Ah, the real challenge! There’s no easy answer. We must find ways to convey the hard-won truths—that patience, diversification, and resilience often prove more profitable than chasing after ‘hot stocks’ or trying to outsmart the market.

Kim: An evolution from selling forecasts to selling sound philosophies?

Dunn: Precisely! Investment houses will always have clients hungry for predictions, but our true worth lies in providing informed guidance, not manufactured certainty. Perhaps my ‘Persistent Delusion’ will always live in some form, but the wise amongst us, those willing to look beyond a flashy ticker, will continue to see its inherent flaw.

Kim: Your critique of forecasting is compelling, Mr. Dunn. And yet, with vast amounts of data and complex technological tools at our disposal… undoubtedly, our predictive abilities must have improved since your times.

Dunn: I appreciate the sentiment. Technological leaps are indeed staggering. However, I fear your context reinforces my core argument: “We are not able to see the future with certainty.” Predicting markets hinges on that very ability, which remains elusive.

Kim: Indeed, black swan events still catch us off guard. Yet, I’d challenge your implication that nothing has changed. We can now sift through data far more comprehensively, spot intricate correlations… This might not ensure ‘fortune-telling,’ but indeed, it sharpens the odds of identifying solid companies.

Dunn: I agree that meticulous analysis has an ever-increasing role in discerning worthwhile ventures. Your emphasis on selecting solid growth stocks echoes my own philosophy. Where we may diverge is in the weight placed on tools alone. Data can illuminate pathways but not destinations.

Kim: A fair point. But doesn’t modern modeling at least help gauge future direction, even if not pinpoint it? Don’t algorithms help spot subtle, humanly undetectable patterns that drive potential growth?

Dunn: The temptation of finding hidden, market-moving patterns is as old as investing itself! In my day, charts were the weapon of choice. While the complexity of your tools has evolved, the underlying pursuit – outsmarting what is inherently an unpredictable entity – is essentially unchanged. Your ‘success rate of speculation’ is as uncertain as in my era.

Kim: Yet, with more significant information and computing power, aren’t we better equipped to sift the promising stocks from the chaff? The very foundation of choosing growth lies in an underlying analysis of potential – isn’t that improved with time?

Dunn: I wholeheartedly agree that a wealth of data can enhance your research – discerning management quality, assessing competitive advantages, the very things that contribute to long-term value. The overreliance on such analysis for predicting near-term movements becomes treacherous. As you so keenly stated, it’s about “selecting the right growth stock very carefully.” Therein lies the crux – both in 1939 and today – a careful approach focused on fundamentals, which was and remains the most steadfast pathway.