Perceptions, Presidents & Investments

When I think of perceptions, my mind goes back to former French President Nicolas Sarkozy.
At the start of his term, he was France’s most popular leader since World War II hero General Charles de Gaulle. Five years down the road, he was the most unpopular incumbent French president since the war. 

He appeared refreshing at the start, but intolerable towards the end.
Once people began to perceive him differently, it overrode everything else.
When they finally voted him out of office, it was almost a personal referendum on him.

Daily Mail nastily referred to him as a man who wants to be Steve McQueen. 

Guardian  commented that he was “shamelessly admiring of money and those who have it…”
The flamboyant Sarkozy had expensive tastes in accessories (who can forget the Rolex and Patek Philippe wristwatches and Ray-Ban sunglasses?) and made a glaring faux pas when he celebrated his election victory at Fouquet’s, a fancy restaurant on Paris’s Avenue des Champs Elysees, with a dozen of his rich buddies, and then sailed away on a yacht belonging to one of them.

He later said that he regretted both those moves and blamed it on his “disorientation” because of his troubled second marriage. A laughable explanation which was scoffed at by the public because he ended up getting married rapidly– just three months after divorcing existing wife and two months after meeting the new one – to an ex-supermodel whose past conquests reportedly include Eric Clapton and Mick Jagger.

Guardian also said that he was “pushy, vulgar, uncultured, impetuous, in-your-face-rude….” 

Poor Sarkozy, he asked for it. He was caught on video an at agricultural fair saying "Sod off..." to a man who refused to shake his hand; audaciously sent text messages to his wife during an audience with the Pope; imprudently paraded his first public date with Carla Bruni at Disneyland weeks after his high-profile divorce and brazenly turned up at the presidential palace in jogging shorts and shoes on his first day in office.

As perceptions changed, it turned out to be politically suicidal. Sarkozy would have learnt that much of what happens to us in life hinges on how we are perceived by others. 

But perceptions don't just affect how we are viewed and treated. Perceptions also drive our decisions - most of them.
At this point, my thoughts go to the US presidential campaign.
Paul Ryan’s selection as Mitt Romney’s running mate has got tongues wagging and keyboards punching away opinions on what this means for the campaign.

While Examiner has said that Romney is playing to perceptions, Daily Caller refers to Ryan as doing a “wonderful job wrapping himself in the mantle of a fiscal conservative, but there simply isn’t any evidence to back up the perception.”

Here’s their take on bipartisan.

Democrats want Ryan perceived: as a fiscal conservative so they can condemn him as a draconian slasher who wants to gut essential government programs and drag them back into the 19^th century.

Republicans want Ryan perceived: as a crusader against the bloated federal budget and the perfect “bridge” pick to help Romney attract those fickle budget hawks and libertarians to his cause.

What Ryan really wants: To drastically increase the size and scope of the federal government. Since the truth is not useful to either major party, it’s discarded.

Ryan is perceived as bold and decisive, and intelligent and articulate, just what is needed to give a new dynamic to Romney’s campaign that was running out of steam. 

Examiner is probably spot on when it states that in politics perception is reality. 

What about investments?
Don't perceptions influence our decisions? Does perception become our reality?

Seeking Alpha tackled this well. 

Company A: a money-losing socially networking company in an exciting growth market
Company B: a profitable and mature enterprise in the unattractive traditional media space 

Company A enjoys an excessively elevated valuation in relation to Company B, despite the fact that Company B is profitable and has a long history of stable operations and reasonably stable outlook.

Company A’s valuation is driven by a perception of strong growth going forward and will be favoured by growth investors; Company B is perceived to be in a mature industry and thus not worthy of a valuation close to Company A but will be eyed by value investors. 

The article goes on to explain how perception will eventually influence a few of the basic fundamentals of the company. But I need not go into that here.

My point is that perceptions matter when deciding where to put your money. Have you not gravitated towards a larger fund simply because you perceived that if many put their money there it is probably good? After all everyone cannot be a sucker. Take heed, the Goliaths are not always superior to the Davids.  
Bigger does not necessarily mean better. 

A parallel can be drawn in sport. Livestrong argues that fist size or hand size does not make much of a difference in martial arts or boxing. It is the force behind the punch and the technique that is used in delivery. Make sure your fund manager has more hits than misses and is not simply riding a heavyweight.  
Size does not always matter (in investing). :)