One of the most important lessons I've learned in my investing career is that independent thinking is key to staying ahead of the crowd. The market can be a noisy place—full of opinions, predictions, and speculation. If you follow every piece of advice or try to fit in with the herd, you'll often find yourself buying high and selling low. Today, I want to share my journey with independent thinking and how it has helped me make better decisions and, ultimately, achieve better results for my clients and myself.
The Danger of the Herd Mentality
When I first started investing, I was eager to follow what the so-called experts were doing. I thought that if I could just copy successful investors or listen to analysts on TV, I would be successful too. It didn't take long for me to realize that this approach was a recipe for mediocre returns at best, and at worst, costly mistakes.
I remember back in 2017 when everyone was jumping into tech stocks. The market was roaring, and everyone around me seemed to be making easy money. There was one particular company—a hot tech startup—that everyone was buying into. I, too, joined the herd, thinking I was missing out on a great opportunity. I bought in at $85 per share, but within a year, the stock had dropped to $40, and I ended up selling at a loss.
The Lesson: Following the herd can lead you straight into overvalued stocks, and when the hype fades, you’re left holding the bag. It was a tough lesson, but it was the wake-up call I needed to start trusting my own analysis rather than blindly following the crowd.
The Power of Independent Thinking
After that experience, I decided to change my approach. I started doing my own research, digging into companies' financials, and forming my own opinions. One of my best investments came from stepping away from the herd and making an independent call.
In 2018, while most investors were still focused on flashy tech names, I came across an industrial equipment manufacturer that seemed entirely overlooked by the market. It was trading at a P/E ratio of 9, and despite a solid balance sheet and stable cash flows, it had been beaten down because of short-term concerns about commodity prices.
I spent time analyzing the company’s fundamentals. I looked at their revenue history, debt levels, and the long-term outlook for their industry. It became clear to me that the market was missing the bigger picture. I bought in at $55 a share, and within two years, the price had nearly doubled as the market eventually caught on to the value I saw.
The Lesson: Independent thinking isn’t about ignoring everyone else—it’s about doing your homework and forming your own conclusions. The market isn’t always right, especially in the short term, and the biggest opportunities often lie in the places most people aren’t looking.
Going Against the Grain
Independent thinking also means being comfortable going against popular opinion. This isn’t easy. It requires conviction, confidence, and a willingness to be wrong sometimes. There was one instance in 2020, during the height of the pandemic, when I invested in a travel-related company. The industry was in chaos, and the general sentiment was extremely negative. People were saying it would take years for travel to recover, and as a result, the company’s stock was trading at a steep discount.
But when I looked at the fundamentals, I saw something different. The company had a strong cash position and was taking steps to reduce costs and weather the storm. I believed that travel would eventually rebound and that this company was well-positioned to survive the crisis and come out stronger.
I bought in at $25 per share, and within 18 months, the stock price had recovered to $70. This was a case where independent thinking—ignoring the noise and focusing on the fundamentals—allowed me to make a profitable investment when most investors were too fearful.
How to Develop Independent Thinking
1. Do Your Own Research: This is the foundation of independent thinking. Don’t just rely on analyst reports or what you read online. Dig into the company’s financials, understand its business model, and form your own conclusions.
2. Question Popular Narratives: Just because a story is popular doesn’t mean it’s true. During the pandemic, many people thought certain industries were doomed. But if you looked closely, you’d see that some companies were actually in a strong position to navigate the crisis. Always ask yourself: Is this narrative based on facts, or is it driven by fear or hype?
3. Be Willing to Be Uncomfortable: Independent thinking often means you’ll be making decisions that others don’t agree with. It’s not easy to go against the grain, but that’s often where the best opportunities lie. Remember, if you’re buying what everyone else is buying, you’re unlikely to find undervalued stocks.
4. Stick to Your Convictions (But Be Open to New Information): Independent thinking doesn’t mean being stubborn. There have been times when I’ve had to change my mind because new information came to light. The key is to base your decisions on solid research and not let emotions drive you.
A Real-World Example
One of my favorite examples of independent thinking comes from legendary investor Warren Buffett. In the late 1960s, while most investors were chasing growth stocks with sky-high valuations, Buffett was buying undervalued companies like American Express, which had been beaten down due to a scandal. His independent analysis led him to conclude that the company’s core business was still strong, and he made a significant investment that ended up being hugely profitable.
This story has always inspired me to trust my own judgment, even when the market seems overwhelmingly convinced of something else. The best opportunities often lie where others aren’t willing to look, and having the conviction to act on your own analysis can lead to outsized returns.
Conclusion: Trust Yourself
Independent thinking is the backbone of successful investing. It’s about having the courage to form your own opinions, the discipline to stick to them, and the humility to change your mind when new facts emerge. In my experience, the times I’ve trusted my own research and gone against the herd have often led to my biggest successes.
The market will always be full of noise, and it can be tempting to follow the crowd. But the investors who truly succeed are the ones who can step back, think independently, and make rational decisions based on facts—not emotions. Trust yourself, do the work, and you’ll find that independent thinking is one of the most valuable tools you have in the pursuit of investment success.