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MSFT Lesson: The Herd Following Mentality of Value Investors


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By Brian Zen - Posted on 22 January 2009

Seeing the vibrant volunteering community in free software open source community, I had serious worries about Microsoft (MSFT) for months. Yet I did not act on my insight because a number of superinvestors I respect were tooting Microsoft. So I had doubts about my first-hand experience and my own judgment.

Today, my first hand knowledge about Microsoft and my worst nightmare is confirmed:
http://finance.yahoo.com/news/Microsoft-to-slash-5000-jobs-apf-14125803....

Reviewing all the major mistakes in my investment career. I recently discovered that a lot of my huge losses stem from blindly following a well respected investment expert despite mounting evidence on the contrary. Blindly following the experts is a big mistake, a sickness of an independent mind.

From today on, I will question the analysis of all investment experts and rely on my own first-hand practical experience and hands-on research. That includes questioning the masters from whom we have learned so much.

The idea of coattailing superinvestors has been hot in the value investing community for a couple of years already. A number rising stars capitalized on the value investing phenomenon. It turned out that even we, the self-proclaimed contrarians, are not immune to the herd mentality of crowds.

Value investors suffered huge losses by blindly following other smart investors who have been tooting their stocks and performances.

Five hundred years ago, the Buddha said: "Be a Light onto yourself!" Your teachers can help you and prepare you. But you have to the one to light up your inner candle yourself. The inner investigation to experience being a Light onto oneself is the key of deep meditative thinking. True meditation is mentally free from all opinions, from all outside influences, and from all authorities.

There is a concept called the "Great Doubt" in Zen wisdom that calls for the questioning of any idea from experts and authorities. That means that as value investors, we should even questions the analysis of even the greatest of all.

Search and investigate through first-hand experience, and you will find the Light with your own eyes.

From today on, I will question all the value investing gods that we know.

The fad of value investing got a lot of people hurt. Please take a dispassionate look at your own portfolio. How much losses stem from following superinvestors and pushing aside your own first-hand insights?

Please share with me the result of your review.

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