An astute value investor maintains a disciplined approach to his craft. He knows to value the company based on careful analysis and avoids the seduction of rationalizing the acquisition of attractive companies that fail to fit the criteria.
There will be periods of time when this investment discipline underperforms, sometime for such long periods that the discipline is subject to question. Experienced investors know that in the short term the market is a voting machine, but in the long term it is a weighing machine. Values are eventually recognized, but it takes patience and discipline and faith in your investment premise and criteria.
During the hot market of the 1990’s value investing underperformed a market high on exciting new technology. There was talk of new paradigms; that old investment criteria no longer applied. Some funds saw money exit for the better performers, chasing higher returns. Some of these funds changed their investment strategies and principles, many of them right before the market collapsed.
One could suggest that such a change was a “pragmatic” response to a changing market, and I use this analogy to lay bare the fallacy of political pragmatism.
Theories of economics and politics are imperfect and must be applied in an imperfect world. Voters criticize those committed to these principles as ideologues when they seem tone deaf to the problems of real people. It may be necessary to vary from a principle or sound theory in unstable times, but it is quite another thing to abandon sound principles to solve short term problems and never return to the principles.
When we lose sight of our sound principles, pragmatism becomes a dangerous state of mind. The last century of Progressivism is wrapped around a principle of pragmatism, considered the opposite of ideology and principles. Detached from principles, pragmatism becomes another form of power, and assumes (wrongly) that that there is a consensus of what needs to be done. Pragmatism does not dispense with the conflict of political factions. In a democracy with a large number of political clients it only aggravates conflict.
The problem on the seeming simple idea of pursuing what works, is that what work for some may not work for others; what works in one time period may not work in another with a completely different set of environmental factors. Pragmatic policies may sow the seeds of their own destruction. What is often claimed to work often doesn’t.
When Pragmatism (with a capital ‘P’) becomes an ideology itself, it has no bearings to guide it. The word had a positive connotation in most personal and business settings, but it takes on a sinister character in the political realm: it becomes a rejection of sound principles and a justification of the ends justifying the means. It becomes a source of tyranny in government.
Those who demean ideologues have distaste for the other guy’s ideology and contend they are not so influenced. But John Maynard Keynes noted:
“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”
Be cautious of the call for Pragmatism ( capital ‘P’) on the campaign trail.