There are two kinds of people in this world. If you drill down deep enough into someone’s psychology you will find she is hardwired psychologically for either momentum or value (a.k.a trend or mean reversion).
Some Characteristics Of Momentum People
Of the two types of people, momentum people are more sociable. They are innate trend followers. For momentum people, it’s always best to stick with what’s working.
Their business and lifestyle decisions reflect this. “Get while the getting’s good,” is what they think during an economic boom. They prefer to “cut losers and let winners run.”
Momentum people are pro-cyclical. They are fun at parties during boom times. It’s easy to be the life of the party when you are making a lot of money.
Some Characteristics Of Value People
Value people by contrast are a pain in the ass. They are often curmudgeonly and unpopular. This is no accident. Value people are innately contrarian. Mean-reversion underlies a value person’s worldview. For a value person, “things are never as good as you hope, or as bad as they seem.”
A value person’s business and lifestyle decisions reflect this. Value people pare risk and accumulate cash during boom times. They take risk and deploy cash during bear markets.
Value people are counter-cyclical. They are never much fun at parties because they’re always out of phase with the crowd.
Which Are You?
In the end it doesn’t really matter whether you are a momentum or value person. You can succeed in life and business either way (well… assuming you don’t over lever yourself).
What matters is that you recognize whether you are wired as a momentum person or a value person, and that you avoid putting yourself in positions that are a fundamental mismatch for your psychology.
For example, I think I would probably make the world’s worst venture capitalist (spoiler alert: I am a value guy). Not because I would lose money but because it would be hard for me to invest in anything in the first place.
The high base rate for failed venture investments would loom large over every decision. The incessant cash burning would haunt my nightmares.