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RobinHanson's avatar

Makes complete sense.

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brendan_r's avatar

I encounter powerful "big scope status bias" when trying to train other folks to do productive equity research.

The naive search process is to find big "trends" and then to find particular firms playing on that trend.

It's much better to scan broadly at the individual firm level (inside industries you understand) looking for idiosyncratic things.

That's better because, a) idiosyncratic things are less likely to be widely understood and therefore priced, and b) broad trends matter less than more stable things like market share, entry barriers, and operational efficiency.

When I explain this to people - markets are super efficient and your only chance to find small quirky problems that few people are analyzing - folks agree with me, and then revert right back to what they were doing before.

And it doesn't just affect the search process. You hand them a particular company, say, an Israeli chip metrology firm, you point them to key idiosyncratic unknowns, and next thing you know they're analyzing the Mid-East security situation. As if that wasn't a crowded arena!

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