These prejudices that make your life difficult

In the stock market, as in life, we are constantly confronted with prejudices. These come from our culture, our education, the media, our experiences, our fears, our greed, whatever. They push us to act most of the time irrationally, and therefore make us make mistakes. I provide some of them below, trying to understand them and protect ourselves from them.

Prejudice #1: Investing in the stock market is risky

Cette croyance nous vient des pertes que beaucoup d'investisseurs (dont peut-être nous-mêmes) ont essuyé par le passé, lors de certains gros krachs ou marchés baissiers historiques. On pense évidemment à 1929, 1987, 2000 et 2008, mais il y en a encore beaucoup d'autres. Certains petits épargnants, mais aussi de beaucoup plus gros acteurs, ont tout perdu ou presque lors de ces événements. Même s'il y a une part de vérité, ce préjugé nous conduit à rester totalement en marge du marché, ce qui nous fait courir un autre risque beaucoup plus et pernicieux : la perte du pouvoir d'achat à cause de l'inflation. En laissant ses billes sur un compte épargne, on perd en effet à coup sûr de l'argent en termes réels sur le long terme.  Certes, à court terme, la bourse est plus risquée. Mais à long terme c'est le seul moyen efficace pour faire progresser la valeur de son capital. Pour diminuer le risque d'investir en actions, il faut diversifier, acheter bon marché, investir de manière régulière et posséder un horizon de placement de 10 ans au moins.

Prejudice #2: Investing in the stock market is complicated

Il y a trente ans, c'est vrai que ce n'était pas évident d'investir en bourse. Internet et les ETFs n'existaient pas. Il fallait donc puiser ses informations dans les revues et journaux spécialisés, puis téléphoner à son banquier pour passer un ordre.  Aujourd'hui le web regorge d'informations (pertinentes ou non) et on transige un titre en l'espace de quelques clics, à moindres frais. Mais la règle de base pour investir n'a jamais changé et reste finalement assez simple : acheter un titre bon marché par rapport à sa valeur intrinsèque. Suivant la méthode qu'on va utiliser pour déterminer cette valeur, c'est vrai que ça peut devenir compliqué, mais on peut aussi facilement s'accommoder d'un seul indicateur, comme l'ont prouvé plusieurs recherches. Même une stratégie toute simple, consistant à n'acheter que les titres avec les plus faibles ratios EBIT/Entreprise Value permet de battre les investment funds, pourtant gérés par des soit-disant experts du domaine. Si on ne veut pas se prendre la tête on peut carrément acheter un ETF qui réplique le marché, il n'y a pas plus simple, et comme la plupart des gens n'obtiennent de toute façon pas de meilleurs résultats que Mr. Market, cette stratégie a tout son sens également. Comme toujours, le mieux est  l'ennemi du bien. En bourse, comme au marché du coin, on doit juste acheter à bon prix. Si on commence à trop vouloir compliquer les choses, ou à les voir plus compliquées qu'elles ne le sont vraiment, alors on a toutes les chances que ce soit notre vie d'investisseur qui devienne compliquée.

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Préjugé n°3 : Un titre devient bon marché si son cours s'effondre

Ask 100 people how to judge if a stock is cheap and 99 will tell you that you just have to look at its price history. If the stock is at its lowest in 12 months, or has lost a third of its value, for example, it is because it is "necessarily a good opportunity at this price" or it "cannot go any lower". Unfortunately, stock market history is full of companies that started by losing a few dozen percentage points, before going bankrupt. In Switzerland, we even had a textbook case in this matter, with the disappearance of Swissair. How many suckers, including yours truly, have been trapped by thinking they were buying a bargain when the airline was heading straight for ruin? As the saying goes, "You can't catch a falling knife". This is without a doubt one of the most valuable lessons I learned the hard way during my early years of investing. The history of stock prices has absolutely nothing to do with the value of a company. If the price falls at any given time, it is because the market believes, rightly or wrongly, that the company has lost its value. If it is right, as with Swissair, then the opportunity turns into a trap. Conversely, even if the market is wrong, it is not certain that the price, despite the fall, reflects the intrinsic value of the company. It is only the latter that should dictate our choices. Moreover, the market can take several years to recognize its mistakes.

Prejudice #4: A stock becomes expensive if its price rises sharply

If we assume that a stock is cheap when its price collapses, then the reverse would also be true: a stock that has gained 50% in a few months must necessarily be too expensive. But again: too expensive compared to what? It is not because the market is recognizing its mistakes, because it has disdained a company too much, that it has caught up with all the delay in terms of valuation. If you estimate that a stock is worth 100$ and its price has recently risen from 50$ to 75$, then you can still expect a nice capital gain by buying it at this price. Better still: you do not have to wait for the market to become interested in the stock you covet, because it is already getting carried away.

Myth #5: Big companies are safer than small ones

On a parlé de Swissair, mais on pourrait aussi citer Kodak, General Motors, Enron et Lehman Brothers.  Les grandes entreprises sont certes la plupart du temps plus diversifiées et bénéficient aussi d'un accès plus facile au crédit. A contrario, elles sont nettement plus difficiles à piloter et à faire évoluer. Les problèmes à traiter dans les petites entreprises sont relativement simples et connus. Dans les big caps, ils sont complexes et parfois décelés trop tard. Les grandes entreprises ont de la peine à s'adapter aux changements rapides de l'environnement social, technique, économique, politique et écologique. Elles ont aussi des difficultés à innover, se renouveler et donc croître. Les small caps possèdent certes le risque inverse : elles n'ont pas toujours les reins assez solides pour traverser des difficultés passagères. En prenant quelques précautions lors de la lecture des bilans de ces entreprises, ont peut néanmoins s'assurer qu'elle seront suffisamment armées pour le faire. Pour les grandes entreprises, c'est beaucoup plus difficile de juger de manière objective si elles ont les qualités suffisantes pour perdurer. On doit apprécier des critères qui sont moins quantitatifs ou financiers, mais plus d'ordre stratégique, humain, managérial et technique. Dans tous les cas, il est faux de penser qu'elles offrent plus de sécurité que les petites.

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Prejudice #6: The market is efficient

This is more than a prejudice, it has even become a theory. However, you don't need to have attended HEC to see that this statement is totally wrong. Speculative bubbles have always existed, we even have a fairly recent case study in 2000 with Internet stocks. If the market were truly efficient, it would not allow the price of companies that have never created the slightest profit to soar into the firmament. Nor would it allow, following the long bear market that followed, other very good quality stocks to be totally neglected. Along the same lines, if the market were truly efficient, how is it that a certain number of investors, part of the Benjamin Graham school, have managed to beat it year after year, for a very long time? The market, in the short term, is anything but efficient. It reacts according to the fears and greed of the human beings who interact with it. In the long term, however, it does indeed always end up returning to its true value.

Prejudice #7: Analysts know more than we do

Les analystes ont évidemment accès à un nombre incalculable d'informations privilégiées. Ils ont le temps d'effectuer des recherches de longue haleine sur une entreprise en particulier. Alors oui, de ce point de vue, ils en savent plus que nous. La bonne question à se poser néanmoins c'est : est-ce que ces informations sont utiles et pertinentes pour obtenir une meilleure performance tout en minimisant le risque ? La réponse est non. Les analystes possèdent tous un ou plusieurs biais. Le premier c'est qu'ils sont issus du sérail financier. Ils arrivent donc difficilement à penser "Out of the Box". Le meilleur exemple nous a été fourni en 2008 avec la crise des subprimes. L'autre biais des analystes, c'est leur focus fréquent sur les résultats à court terme, notamment les résultats trimestriels. Ce faisant ils participent à la volatility des marchés en émettant des recommandations ou des prévisions de résultats. Citons encore évidemment les conflits d'intérêts évidents auxquels ils sont soumis. Donc, oui les analystes en savent potentiellement plus que nous, mais ces informations ne servent que leurs propres intérêts. Au contraire, en pensant en dehors du système, nous avons toutes les chances de notre côté pour faire mieux qu'eux.

Préjugé n°8 : Seuls les très riches peuvent gagner de l'argent en bourse

Having a substantial starting capital undeniably offers several advantages for investing in the stock market. The larger our assets, the more we can diversify our assets. In addition, by buying large positions, we limit the proportion of transaction fees. However, it has been proven that beyond 50 positions, diversification no longer offers any advantage. In addition, these days, we can find really cheap brokers, even for small transactions. When we have a small fortune, it is relatively easy to find opportunities to invest in. On the contrary, with a large amount of cash, we have to rack our brains to find more and more places to invest our money. We can certainly use financial specialists, but they obviously charge additional fees, and as we have just seen, they are not necessarily better than us.

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Myth #9: A stock that pays a big dividend is cheap.

It's so tempting... You come across a stock that pays a yield higher than 5% and you think to yourself that it's a great deal. In doing so, you forget that dividends, unlike bond coupons, are not guaranteed. A company can absolutely reduce or even eliminate the distributions it offers to its shareholders. On the contrary, a company that pays a very small dividend can decide to double it the following year. Basing itself on the dividend to know whether a stock is cheap or not is therefore a very bad idea.

Myth #10: Mutual funds are safer than stocks

It's quite the opposite! As we saw in prejudice #2, even by betting on a very simple strategy, it is possible to obtain better performance than investment funds. You just need to diversify your portfolio sufficiently to prevent it from being too volatile. Between 20 and 50 stocks will do the trick. By betting on an investment fund, you inevitably lose between 1% and 2% per year, just to pay those who take care of it. That's a lot compared to a real profitability of around 8% that you could obtain per year on the stock market. Don't forget: any intermediary will necessarily take their share of the cake. By buying stocks directly, you avoid this problem. Not to mention that you are certain that the strategy suits you. ETFs are more interesting than investment funds, because of their low management fees. Be careful though because ETFs have a bias towards "popularity" (to the detriment of quality), namely big caps and large stock markets. In addition, they have an unfortunate tendency to lend the shares they own ("securities lending"), in order to artificially lower their fees. This practice is not without risks. Some even say that this rather opaque strategy of ETFs has the potential to trigger a crisis comparable to that of subprimes!


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5 thoughts on “Ces préjugés qui vous mènent la vie dure”

  1. Laurent Martin

    Thank you for this article. Even if you already know something, it feels good to read it. And even if you are aware of some of your own biases, you still have to fight not to be taken in by them. I am constantly fighting, and not always successfully…

  2. Philip of Habsburg

    I have a friend who is convinced that the American capitalist system has found a way to make the stock market and the economy go up to infinity, without ever going back down. We have been arguing about this for a year or more. I am sure I will win, but for now he keeps proving me wrong… I can't wait to laugh at him!

  3. Thank you for this excellent review of stock market bias.

    Another very common a priori on the stock market is that a stock with a PER of 20 is necessarily more expensive than another with a PER of 10 and that it is better to buy the second. However, this ratio (or another one like the PBR) depends enormously on the quality of the company, its growth, its margins, etc. This is why a pearl like Geberit or Partners Group is cheap at a PER of 20, while a spot like Adecco is much too expensive at a PER of 15.

    I very often read on blogs criteria like "I only buy stocks with a PER below 20". By doing so, we do not take into account the quality of the company. It's like saying that a BMW should cost the same as a Peugeot!

    1. Yes, that's right. Quality has a price. This is perhaps the hardest thing to judge. How much am I willing to pay to possess these particular attributes?
      The danger in betting only on low PERs, for example, is that you end up with lame ducks. Conversely, focusing on the top of the basket in terms of price does not guarantee quality. It's like when you buy goods and services. The most expensive is not necessarily the best, but the cheapest is often (but not always) a bad deal. It is important to look at price and quality.
      That being said, research has shown, as I said in this article, that even by focusing only on one valuation criterion (EBIT/EV), you can beat most wealth managers. Focusing on stocks that are neglected by the markets therefore means benefiting from great opportunities and a kind of safeguard against overly speculative stocks. Of the mass of stocks purchased in this way, there will of course be poor quality stocks that risk underperforming. Adding qualitative criteria can significantly limit these drawbacks.
      Also, be careful, as you say, with this famous PER (which is a little too well-known for my taste). Among the many valuation criteria that exist, it is undoubtedly the least relevant, because it is inconsistent, unreliable, subject to manipulation and different interpretations, depending on what is or is not translated into the profit.

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