Before you invest, wash your hands

Investment

Being successful in the stock market can sometimes be a disadvantage. You’re likely to grow an over-sized ego, and it’s easier to exploit people when big egos are involved. This is true in both investing and medicine.

For most of recorded history, surgeons didn’t wash their hands before treating patients. In 1847, a Hungarian physician named Ignaz Semmelweis was widely ridiculed for trying to change this unsanitary policy. For his efforts, he got fired and later died in an asylum; an unfortunate fate for one of the world’s greatest contributors to modern medicine.

Before his death, Ignaz conducted a ground-breaking study. He’d noticed there was a remarkable difference in the mortality rates for new mothers during childbirth in two separate maternity wards in the same hospital.

Surprisingly, the maternity ward that catered to the well-to-do and had trained physicians and medical students in attendance had higher incidences of death. The section set aside for the lower classes, who were attended to by midwives, displayed a much better survival rate.

He decided to get to the bottom of this. It turned out that when physicians and medical students were not assisting with childbirth, they were experimenting on cadavers in the morgue during their down time. They returned to the upper-class maternity ward without washing their hands, carrying the diseases of the infected dead with them, and leading to disastrous outcomes for many young mothers.

In other words, you were better off using a midwife in a crowded and dirty maternity ward filled with poor people.

What does this have to with investing?

As an investor in the public markets, you’re powerless. Completely powerless. You have one lever in front of you, and all it does is buy or sell.

Everything else is wishful thinking. I’ve learned that you’re completely at the mercy of other people’s decisions. The executives you count on can be influenced on levels that are not known to you. As the saying goes, “if you’re not sure who the sucker at the table is, it’s you”.

The key lesson from Ignaz’s story is that you must choose carefully which companies you invest in. Don’t imagine that the good-looking counters don’t hide dirty skeletons, or that the crowded counters have nothing of value to offer. In my case, a rule of the thumb I use is not to invest in any counter that has more than 25 per cent Government shareholding. I’m not saying you should adopt this policy, but you should figure out what matters to you.

I want devout respect for the shareholder from the companies I’m buying into because I’m not willing to be the sucker at the table, or looking to end up in an investment asylum.