The Motley Fool Funds team is mainly a team of foxes, except when it comes to our philosophy.
“The fox knows many things, but the hedgehog knows one big thing.”
— Greek poet Archilochus
Is it better to be a fox or a hedgehog? (I promise, there's an investing lesson here) Historians and casual-quote lovers have determined that 2,600 years ago, when the fox-and-hedgehog debate began, hedgehogs ruled the day. It seems this determination was made based on survival defenses; while a fox has many possible defenses against predators, the hedgehog’s sole defense – rolling into a ball to expose its spines – makes it invincible to its predators. Safety first, I guess.
But let’s take a dark turn, away from natural predators. Would you rather be a fox or hedgehog if you were being hunted by a human wielding a gun? In this case, the hedgehog defense is useless. The fox, with its speed and guile, stands a chance at survival. The fox/hedgehog choice is contextual.
Foxes and Investing
In 2007, Robert Carlson, chairman of the Fairfax County (Virginia) Employees’ Retirement System, published a book titled Invest Like a Fox… Not Like a Hedgehog. The distinguishing characteristic, as it is presented, is one of flexibility (foxes) versus inflexibility (hedgehogs). Given that markets and economies are complex systems, inflexibility dooms an investor.
The investing preference for fox behavior also gets a boost from the teachings of super-investor Charlie Munger, who espouses latticework thinking – understanding the key elements that form the foundation of large disciplines, such as psychology, finance, and biology. In case you don’t know. Munger is Warren Buffett’s business partner and investing confidant. His track record, and his influence on Buffett’s track record, make the case for unseating the fox as champ very unlikely.
Foolish Foxes or Hedgehogs?
The team managing your hard-earned and hard-saved capital at Motley Fool Funds definitely has elements of foxes. For example, we are all generalist analysts, meaning we don’t segment ourselves by sector or industry. Rather than just know healthcare, or just know banks, we learn a large swath of business models and approaches and choose to invest in what we think are the best.
As a group, we resemble a skulk of foxes. We treasure cognitive diversity as a technique to manage risk. Because our team has diverse backgrounds (engineering, computer science, finance, law, and pharmacology among them), we see the same situations from very different angles. Our collaborative vetting process brings out these differences as we debate where to invest your money.
However, I can’t help being drawn to the allure of the hedgehog. Isn’t there merit in knowing or doing one big thing incredibly well? Isn’t this mastery? I believe our team is hyper-focused on knowing and living our philosophy of pursuing business-focused, long-term investing. It shapes our language. It guides our research. It drives our decisions. We review our previous thinking and investments to assess whether we adhered to our philosophy. This singular focus must also make us hedgehogs.
Of course, the fox-and-hedgehog dichotomy is forced. There are more species in the world than just these two animals. Still, I don’t think the framework is useless. It is important to be self-aware and intentional. I suspect that the team managing your money, by our nature, are foxes: naturally curious, never satisfied, and eyes always wide open. But we believe in the grounding importance of being a hedgehog: staid in our philosophy, focused, and consistent. We’re FoxHogs.
The context of our situation is our quest to find the greatest investment opportunities and use them to construct portfolios with attractive risk and reward profiles, according to the objectives we’ve promised. The fox knows many things, and the hedgehog knows one big thing, but the FoxHog allows for vast exploration within a well-defined lane. Being FoxHogs gives us the best chance of succeeding as asset managers.