Skip to main content

Is There a Place for Intuition in Investing?

We're constantly on the lookout for patterns.

You probably agree that making investment decisions rationally is better than emotional investing. But what about intuition? Is it just a form of emotional investing?
Let’s start by understanding it.
Intuition is just pattern recognition, but pattern recognition lies on a continuum.
On one end, visual or logical pattern recognition could be thought of as a gross form.1, 2, 1, 2, 1, 2…it's easy to guess the next number.
At the other end, pattern recognition is much more subtle.  All your senses and mental facilities can play a part in uncovering a pattern and because there are so many inputs and no clear path to discovery, it can seem as though it arose spontaneously.  That's why it can seem mysterious, or even untrustworthy.
Let’s talk for a moment about how the brain works.
Every moment of your life, your five senses are pulling in massive amounts of data.  A ten second walk down the street and your nose has smelt a thousand odors.  Your eyes have seen every individual blade of grass, every cloud, the details of dress of everyone you passed. Your skin has noted temperature, humidity, barometric pressure…you get the idea.
But your brain almost immediately discards most of it.  It only holds on to what is important, or more specifically, what you’ve decided is important.
If you are hunting for your dinner, wind patterns, tracks and water sources are important and your brain will hold on to those details.  
While you are in the process of learning, you'll be conscious of gathering information.  As you become more proficient you won't need to think about it anymore.  Your brain still gathers the information, but on a subconscious level.  You've become what's known as an unconscious competent (to be discussed more in a future email).
So rather than a logical, conscious  process that adds up information: ”I’m upwind of the water source and I can see tracks over there and it’s the middle of the day…”, you just know.
This knowing is a form of pattern recognition called intuition.
Extending this line of thought to investing, by consciously choosing to learn your brain starts to turn that barrage of data into information and that information into knowledge.  Given enough time, patience and the willingness to learn from failure, knowledge turns into wisdom.
As you journey this road, you may have moments when a pattern suddenly clicks into place.  This is an intuitive moment.
So the answer to the question is yes, there most definitely is a place for intuition in investing.  But it’s earned, you must put the time and work in before hand - educating yourself, reading, listening, thinking critically, doing analysis.  Only then will your hunches be more than whimsy.  They’ll be actual, valuable instances of pattern recognition.


Popular posts from this blog

A Value Opportunity in Bausch Health

Overview: Bausch Health Cos., Inc. engages in the development, manufacture, and market of a range of branded, generic and branded generic pharmaceuticals, medical devices and over-the-counter products. It operates through the following segments: The Bausch + Lomb/International, Branded Rx, and U.S. Diversified Products.

The Bausch + Lomb/International segment consists of the sale of pharmaceutical products, over-the-counter products, and medical devices products. The Branded Rx segment comprises of pharmaceutical products related to the Salix product portfolio; dermatological product portfolio; branded pharmaceutical products, branded generic pharmaceutical products; over-the-counter products; medical device products; Bausch + Lomb products sold in Canada; and the oncology, dentistry, and health products for women. The U.S. Diversified Products segment refers to the sales in the U.S. of pharmaceutical products, over-the-counter products, and medical device products in the areas of ne…

NextEra - Good Dividend in the Renewable Energy Sector

NextEra had good results relative to a group of peers in a factor-based analysis.NextEra has an appealing profitability and income profile.Its price momentum looks decent, with a caveat.Its relatively small size (a small mid-cap) coupled with its industry (renewable energy) further weight the odds that this company could be a strong performer in the future.
The Analysis Overview
I created a portfolio of stocks in the alternative energy sector, looking specifically for companies with a market cap over $1B but less than $4B.  This is a sweet spot that offers strong potential for growth but is also substantial enough not to be too speculative.

It's my believe that alternative energy is on the ascendance, where as fossil fuels will inevitably decline (NextEra isn't a pure play in this regard however, natural gas assets are part of its portfolio).  If you share this belief and you want exposure to this market, NextEra looks like a good bet.

This is a factor-based analysis on seven …

Twilio - Growth Isn't Reasonably Priced

Overview: Twilio, Inc. engages in the provision of communications software, cloud-based platform and services. Its developer-first platform approach consists of programmable communications cloud, super network, and business model for innovators. The company was founded by John Wolthuis, Jeffery G. Lawson, and Evan Cooke.

Founded: 2008
Number of Employees: 996
Headquarters: San Francisco US
CEO: Jeff Lawson

Analysis Methodology: We'll keep TWLO's business model in mind as we analyze it.  They're an enabling company - they provide tools to help other companies deliver on their objectives.  They help their customers focus on their core business by providing a robust platform where they can quickly, easily and for less money (presumably)  build the ancillary features they need to be successful, namely customer support.  They're a B2B business using a SaaS model.  They are "developer-centric".  I interpret this to mean they are focusing on the developer in their …