Variant perception

A view that differs from what the market price already reflects, in a specific way you could check.

Example

'This company is excellent' is not a variant perception if everyone agrees. 'The market is treating this year's margin dip as permanent and the evidence says it is temporary' is.

Important

Returns above average need both halves: a view that differs from the consensus and turns out to be right. A differing view that is wrong is just an expensive way to be contrarian.

Related terms

  • Herding — Taking a position mainly because many others are taking it, treating the crowd's activity as though it were evidence about value.
  • Circle of competence — The set of businesses, assets or markets you understand well enough to judge what they are worth and what could realistically go wrong with them.
  • Disconfirming evidence — Information that would make your thesis wrong - facts you would have to explain away rather than cite.

Lessons that explain it

  • When concentration is the right call — Diversification is the correct default and it is not a law. The honest version of the argument is about what you would have to actually possess to justify departing from it. (10 min)
  • A memo is a thinking tool before it is a selling document — Two versions of the same memo can describe the same deal and do opposite jobs - one is written to get to yes, the other is written to find out whether yes is correct. (9 min)
  • Four sections decide the vote; the rest is context — A memo can run to fifteen pages and still be decided on four of them - the thesis, the bear case, the return math and the terms. Everything else is background that makes the reader feel informed without changing the answer. (11 min)
  • If you cannot write a good bear case, you do not understand the deal — A bear case built from generic risk categories teaches nothing. A bear case built from 'what would have to be true' names the specific number the whole thesis depends on. (12 min)
  • A thesis is a belief that can be wrong. A preference cannot. — Most people who say they have an investment thesis have a preference - a list of things they like the sound of. The difference is whether anything could show it to be mistaken. (10 min)
  • If nothing could prove you wrong, you have not said anything — A thesis becomes useful at the moment it names what would refute it. This is how to write that line so it is checkable rather than rhetorical. (12 min)

All 578 terms in the Investing glossary