- Seek Truth and Report It
- Minimize Harm
- Act Independently
- Be Accountable and Transparent
In abiding by this ethical code, journalists preserve a certain integrity and trust with their readers. If a story is published, it can be assumed that the facts contained within that particular story are true and the sources, legitimate. While readers know this isn’t always the case, and modern media often gets influenced by external factors and motives, the above ethical code still represents the ideals of journalism.
Seek truth, minimize harm, act independently, and be accountable all seem like no-brainer rules to adhere to. The second rule, “Minimize Harm” is actually shared with the core tenants of practicing medicine. But, if you didn’t know those four principles were associated with journalism, they’d also serve as a wonderful code of ethics for a money management firm. The reasons being, as we’ll explore further, is that journalists must take a stance of humility. If they begin a job with the story they want to tell already in their mind, they prevent the discovery of an objective truth. This is why you often see or hear people who are frequently interviewed by the press (like political candidates) complain about being quoted out of context. Their words are being manipulated to align with a pre-existing agenda. But this kind of manipulated journalism isn’t ethical, nor would it serve you well in money management. You’ve got to let the facts speak for themselves.
Warren Buffett’s relationship with the newspaper business began at an early age. While his father was a Representative in congress, Buffett worked three newspaper routes in Washington, D.C., delivering the Washington Post. Warren’s hustle of the newspaper business is what provided much of the capital for his early nest egg, a figure estimated around $50,000 by the time he was 16 years old. Later in his life, Berkshire Hathaway began acquiring dozens of daily newspapers, behind the investment thesis that these towns had all become a “one newspaper town,” practically guaranteeing Buffett a monopoly for news in that particular city. One such paper, the Omaha Sun even earned a Pulitzer Prize in 1973 for breaking the story of Boys Town and it’s rumored that Buffett still proudly displays this prize in his Omaha office.
Setting aside the fact that Warren both worked and owned newspapers, and that he reads five newspapers daily, there’s something else about journalism that’s influenced his life and career in a major way. In a 2015 interview by former Forbes publisher and ASU professor, Jeff Cunningham, Warren discusses in great lengths how thinking like a journalist has shaped the way he invests:
If I didn’t do what i do in my life, I would want to be a journalist. I mean, I consider myself a journalist to some extent, I assign myself a story. I say, ‘Is the Washington Post company worth $22 per share in 1973?’ I say, ‘Is BNSF railroad worth us paying $34B?’ I assign myself the story. It’s my working hypothesis that it is, but then I go and look for the facts, and I try not to be selective about the facts that I use as input. So, journalism it’s fascinating. I love it. I would say that, A: Always observe that rule about not letting the hypothesis determine the story. B: You’ve gotta learn. You’ve gotta learn about accounting, about how business works, if we’re talking about business journalism. And, you can always get smarter. And if you do the right kind of job, you will attract the right kind of sources. I’m a source for certain journalists, and the reason I am is because I admire their work. The others get no place with me. It’s very important, if you want to become a great journalist, to behave like one as you go along. And then all the other pieces will fall into place. And you want to have a curiosity about business. There are so many good stories that haven’t been written yet. You couldn’t be working in a better area.
Paul Lountzis of Lountzis Asset Management, who’s one of our featured instructors for the upcoming Latticework 2016 is another investor who practices a technique borrowed from journalism: field-research. Paul’s regard for research-driven investing couldn’t be higher. As he says, “The research process is really what drives us on how we look at the world.” To begin this journey, Paul recommends starting by aggregating the key themes and components to your thesis, in other words defining the problem:
You don’t need to know everything about everything. It’s the ability to identify early on from your research what the key themes, components and issues are and there can be derivatives on those and the field-based research augments that. There are occasions where the field-based research will derive a new derivative that you haven’t thought of, but in general, the quality of the research is a direct derivative of the quality of your thought process and the clarity of your thinking in the beginning of your research.
And once you’ve adopted field research as part of your investment process, Paul notes that in time, your research skills will sharpen, ultimately allowing you to spend less time digging and more time investing:
The quality of your field-based research outside of the practical fundamental steps like phone calls and interviewing, what’s really improved over the years, hopefully I’ve gotten a lot smarter and so now there’s many industries and many companies within those industries that I’m so familiar with that just do not redistribute reading financial statements all these years, I can typically hone in on the key issues very quickly, which 20-30 years ago it was much harder for me. As a result, 20-30 years ago, I would do more interviews than I would do today. Today, a handful of interviews or even less give me the conviction that I need.
But why does Paul spend so much time interviewing and reading in the first place? Remember ethical journalism rule #2, the one about minimizing harm? That’s exactly why Paul is so bullish on extensive research, because he’s always thinking about avoiding permanent capital loss and protecting his assets. You might not always learn where to put your money through research, but you’ll definitely discover some places where NOT to allocate capital.
If it’s executed properly and you’re doing the appropriate amount of research on the front end with the business model, with the management and with valuation, it can be profoundly effective, insightful and helpful in, first and most importantly, avoiding permanent capital loss. That’s really what drives our whole research process and it enhances your conviction to try as best as you possibly can to assure avoiding permanent capital loss and then, secondarily, a derivative of the field-based research is finding new interesting ideas and insights that can be very, very helpful on businesses, companies and people.
(Watch the full conversation in The Manual of Ideas Members Area.)
Thinking like a journalist is all about arriving at the truth and uncovering a story. By adhering to the code of ethics laid out by the SPJ, journalists take on the same mental combination of curiosity and emotional detachment that works perfectly for forming investment hypotheses. Perhaps this is why Warren Buffett has always had such a soft spot for journalism and the paper business? To this day, he still likes to have a paper tossing competition at his annual shareholder meeting in Omaha. There’s definitely some lessons to take away from Buffett’s story. Certainly, it’s worth considering how you can adopt some of the best practices of journalistic research into your own investment research process.