By Daniel A. Barnes, CFA

Deep Knowledge is valuable.  In human relationships, its known as “understanding.” In the arts it’s known as “technique.” In sports, it’s “the fundamentals.” And, on Wall Street and with regard to investing, it’s known as having “an edge.” Only through deep knowledge can you have an intuitive understanding of something that is not commonly already known.

We admire and wonder about the seasoned fatherly man, full of wisdom and patience. The kindly aging beauty of a lady who always seems to understand us and our predicaments and know the right thing to say. We wonder (I wonder!), “How does she know? How did she get to this point of human understanding?”

We gape in awe at the performance of a Meryl Streep, or the tenacity of a Tim Tebow, the perfection of Katarina Witt, or the craft of an author like Michael Lewis. How about the perfection of a pre-scandal Tiger Woods?

Artists practice their craft. And Athletes are also artists. They practice the “fundamentals” of their craft better than others. They practice tirelessly, hour after hour, turn after turn, shot after shot. They gain and attain an understanding of their craft, which far exceeds the understanding of others. And the arts extend far beyond just the fine arts and athletic arts, they also include the professional arts.  Doctors, Lawyers, Money Managers.  It really matters when even of these folks mess up.   Who isn’t ready to suspend their disbelief when the see a surgeon perform precision work on a knee — or on a brain or on a heart? Talk about understanding the details of their craft! And they had better understand them.  The skill of professionals matter, as bad outcomes are pretty unpleasant to contemplate (injury, death, jailtime or destitution).

While some elements of mastery may be attributed to “freakish” acts of generosity by genetics and our maker, most of the mastery comes from dedication and hard work. The professional knows, either intuitively or consciously, how to do it better, say it better, show it better.

In 2000 I was hired as a Senior Analyst of a research firm focused on the PC supply chain that extended from Taiwan, through Silicon Valley tech companies, and to the end markets. I wasn’t much of an expert about anything regarding technology, so I decided to focus deeply on one area. For two months, I put together a fabrication (Fab) capacity model which demonstrated the total production (supply) of DRAM chips for the next 3 years. It was a lot of work. But when I finished my model, and then compared the supply figures to the worldwide demand figures, it showed that DRAM would be oversupplied for the next 2½ to 3 years. The implications were simple and powerful, the price of DRAM memory wasn’t going to improve for a long time, hence those companies making DRAM were not going to deliver good financial performance for a long time. My investment to understand and acquire “deep knowledge” about the DRAM industry paid off. I had created an “edge.” I knew something not widely understood. More importantly, this experience showed me the value of deep research in a practical (money making) sense.

“Teach a little and they learn a lot. Teach a lot and they learn nothing.” That is the motto of my dance teacher Mirabai Deranja. Mirabai is a professional dancer. She has a mathematical mind (which I appreciate). First, she studied astronomy, then pursued her passion for dance. Recently we were having a lousy private lesson. My brain was fried. But then, I showed her a basic walking step I had learned from another teacher lately with a lot of contra-body motion.

Suddenly Mirabai said these words: “Your back leg, the angle is wrong. Slide it on the inside, not the outside of your foot, ie., the outside of the big toe, not the outside.  “Otherwise it looks terrible.” Well, I don’t want to look terrible do I!   And suddenly, everything changed. My technique was off. That change of 20 degrees in the angle of my trailing leg made all the difference. Just like with the pitcher who needs to release the ball at a slightly different angle or the actor who needs to inflect more to show understanding or the analyst who needs to see beyond what is popular, I improved my dance technique enormously with just a small correction in technique.  The improvement came from understanding the proper angle on the trailing leg in the basic tango “walk.” Deep knowledge is understanding the fine details and the difference they can make.

I’ve always been driven by research. The understanding of the details differentiates the average from the elite. From precious metals and the unscrupulous printing of money to the coming energy crisis and rebuilding of infrastructure and biogenetics, the economy is going to grow leaps and bounds in some ways over the next decades. I think that thinking and research deeply about some of those areas is a way to develop an “edge”, an advantage, to protect client assets, and grow wealth. If you have significant thoughts about what the future portends in your area of expertise I’d be happy to engage with you in a conversation. There’s a lot of work to be done to identify the opportunities that the great recession will create. I can’t wait.

Barnes Capital LLC is a Registered Investment Advisor. We manage trusts and retirement income portfolios. Financial planning is an integral part of our process. We protect client capital using municipal bonds and high-quality companies which raise their dividend every year. We add Gold to portfolios for diversification. Call Daniel at (925) 284-3503 and visit www.barnescapital.com

 

Tags: bonds, financial planning, gold investing, investment advice, lafayette, lamorinda investments, meyer-briggs, money management, retirement income, RIA, sp, stocks, wealth management

Barnes Capital is a Registered Investment Advisor located at in downtown Lafayette. With RB Capital Management, Barnes Capital develops custom tailored portfolios for its clients. Specialized in retirement income portfolios, financial planning in an integral part of our process. Call 925-284-3503.

This entry was posted on Monday, January 30th, 2012 at 5:56 pm and is filed under Monthly Column. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.