In the investment world there’s usually a large chasm among stock market forecasters about the future direction of the stock market.

The “Bulls” point to the recent tax cuts, earnings and other far-off ideas emanating from their Ouija boards. The “Bears” point to the volatility, retail woes, future interest rate hikes, and political uncertainty, among other things. And again, as always, the investor is left trying to separate wheat from chaff.

With this scenario as a backdrop, I thought it would be useful to share one of my favorite fables.

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The Hedgehog and the Fox was written by Sir Isaiah Berlin back in the 1950s. This fable was based on a line from Archolochus, a Greek poet who wrote, “The fox knows many things, but the hedgehog knows one big thing.”

The following is part of that essay:

The fox is a cunning creature, able to devise myriad complex strategies for sneak attacks upon the hedgehog. Day in and day out, the fox circles around the hedgehog’s den waiting for the perfect moment to pounce. Fast, sleek, beautiful, fleet of foot, and crafty — the fox looks like the sure winner. The hedgehog, on the other hand, is a dowdier creature, looking like a genetic mix-up between a porcupine and a small armadillo. He waddles along, going about his simple day, searching for lunch and taking care of his home.

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The fox waits in cunning silence at the juncture in the trail. The hedgehog, minding his own business, wanders right into the path of the fox. “Aha, I’ve got you now!” thinks the fox. He leaps out, bounding across the ground, lightning fast. The little hedgehog, sensing danger, looks up and thinks, “Here we go again. Will he ever learn?” Rolling up into a perfect little ball, the hedgehog becomes a sphere of sharp spikes, pointing outward in all directions. The fox, bounding toward his prey, sees the hedgehog defense and calls off the attack. Retreating back to the forest, the fox begins to calculate a new line of attack. Each day, some version of this battle between the hedgehog and the fox takes place, and despite the greater cunning of the fox, the hedgehog always wins.

From this well-known fable, Berlin determined that people fall into one of two categories: foxes or hedgehogs. Foxes are constantly chasing their tails and see the world in all its complexity. Berlin tells us they are “scattered or diffused, moving on many levels,” never combining their thinking into one overall idea or unifying vision. Hedgehogs, on the other hand, simplify a complicated world into a single systematized idea, a simple principle or idea that brings together and steers everything. It doesn’t matter how complex the world, a hedgehog reduces everything to simple hedgehog ideas. For a hedgehog, anything that does not in one way or another relate to the hedgehog idea holds no value. Hedgehogs see through the complexity and discover underlying patterns. They only see what is essential and ignore the rest. It’s simplicity at its finest.

I take great comfort in knowing that I don’t need to be constantly fine-tuning some complicated model or trying to combine a multitude of variables that in the end have little impact on the price of an investment.

Think about your own investments. Are they being managed like a hedgehog or a fox?

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