Red Pine on generalizations & investing

Red Pine on generalizations & investing

4/11/2019
By the Andersens

Our 50+ years of investing experience tells us to focus on specifics, not generalities.

People live their lives in details but tend to think and talk in generalities. Why?

We often fall into the generalization trap because:

  • We tend to want to have an opinion and it’s typically more general than specific.
  • We don’t have (or take) the time to research the specifics.
  • We tend to believe what we read or hear from a perceived “expert.”
  • We seek quick answers to questions and easy solutions to problems.
  • We are ‘bombarded’ by generalizations; and they play on our emotions.

The best way to deal with generalizations is by asking key questions:

  • Is the generalization supported by ample evidence?
  • Is the evidence coming from a reliable source?
  • Is the generalization meaningful or meaningless to my particular situation?

Common overused or misused generalizations in the investing world:

  • Stock market, economy
  • Wall Street
  • Active, passive, average
  • Investor, investors
  • Stocks, bonds, funds
  • Soar, plunge

We know when it comes to other life activities:

  • We don’t eat at “the restaurant.”
  • We don’t go to “the movie.”
  • We don’t play or watch “the sport.”
  • We don’t read “the book” – and so on.

There is nonstop chatter about the stock market and the economy.  It is critical to understand that no investor owns shares in either.  We repeat: no one owns the market or the economy.

The S&P 500 Index, for example, is not “the stock market.”  It is less than 2% of the 30,000+ public entities globally (Bloomberg).  We repeat:  The S&P 500 Index is not “the stock market.”

Investors are ‘taught’ to think in terms of ‘stocks’ or ‘stock market’ and that they ‘all’ go up or down together, but this is simply not true.  Behind each and every stock is a unique business.

Don’t let generalities or trivialities affect your thinking or decision-making.


Focus on the economic realities of your investments.  The rest is mostly noise or nonsense.