Everyone loves to hear good news. Everyone loves to hear why they're right. But if you want to make money in the market, as I did for a decade at Neuberger Berman, then you need to listen to why you might be wrong about a stock, and here's why.
Convincing yourself that your original investment thesis is correct is perhaps one of the easiest and most dangerous things you can do. It's natural to want your beliefs reaffirmed by others, especially when your money's at stake. The echo chamber of affirmation can be a terribly destructive thing to your portfolio. To really understand why you're buying a stock, you need to be challenged. You need to hear why you could be wrong.
I'll give you an example. At Neuberger, Team K held a significant position in Allied Capital. When noted investor David Einhorn of Greenlight Capital announced he was short the stock, we didn't dismiss his claims as wildly out of hand (and remember, this was at the beginning of the credit crisis, well before Bear and Lehman collapsed).
Instead, we sent an analyst over for a strategy session of our own, asking hours worth of questions so we could get a better understanding about the company. It ultimately made us better investors.
Tuesday on ""The Strategy Session," we did something similar. We invited Dave Gentry, the president of RedChip Companies, a firm that claims to be an independent research company—but in my opinion is more like actually a paid consultant (a view Gentry disagreed with)—to defend his view that Chinese reverse mergers offer value.
Herb Greenberg has been out in front of this story and challenged Gentry's views and the role of his company. The segment got heated—and there is an extended version online —but in the end, both sides were aired, and investors were left with the proper information to make a decision.