David Kirk: Hedgehog or fox? What your investment style says about you
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Former All Black captain David Kirk, now chair of Rugby New Zealand, joins Listener.co.nz taking a philosophical look at money, finances and living well. The cofounder and chairman of Bailador Technology Investments, Kirk sits on a number of other boards including investee companies of Bailador and charitable organisations.
The most exclusive and probably the oddest college in Oxford is All Souls. The college's full name is The College of All Souls of the Faithful Departed of Oxford. Who, you may ask, are the faithful departed? The college was founded in 1438, and the departed souls are those who gave their lives fighting in the Hundred Years' War (roughly 1337-1453).
All Souls has no undergraduate members. The college takes in a few graduate students each year, known as 'examination fellows', from an applicant pool of about 150. The entrance tests take place over two days and consist of four three-hour examinations, two on specialist subjects and two on general subjects. A further fifth examination, for which applicants are asked to write for three hours on a single word, has recently been discontinued.
In the 2024 general paper, applicants were asked to choose three questions to answer from a list of 29. They included: 'Fame or fortune?', 'How would you explain the internet to a dinosaur?', and 'Stick up for one of the deadly sins.' The 150 applicants are whittled down to a short list of five or six who are then invited to a viva voce examination lasting approximately 25 minutes and attended by some 50 fellows. Perhaps two are admitted.
The late Sir Isaiah Berlin was one of the college's most famous examination fellows. Berlin was born in Riga, Lativa. His parents moved to Petrograd in Russia when he was six, just in time for the Russian Revolution. In 1922 the family fled to England, and in 1932 Berlin was admitted to All Souls College as an examination fellow.
I came across Berlin in the first term of my first year studying at Oxford. My first political philosophy tutor was John Gray, now famous in philosophic circles as a rare example of a pessimistic philosopher. He doesn't believe in progress except in a narrow technological or material sense, and his books marshal a great deal of historical evidence in support of his miserable prognostications. The very first tutorial question he set for me was: 'Freedom is freedom from chains, all else is metaphor. Discuss'
Undergraduate humanities students at Oxford University are taught by the tutorial system. A week before a one-on-one tutorial the student is given an essay topic. They are expected to write an essay of perhaps 2000 words, which will be read to the tutor at the start of the next tutorial. The reading takes about 10 minutes. The remaining 50 minutes are devoted to questions from the tutor and discussion of the essay question. Presented with each essay question is a list of books and articles germane to that week's topic. On the list for that first essay in my first week was an essay by Sir Isiah Berlin titled Two Concepts of Liberty.
In 1953, Berlin published a different essay, inspired by a fragment of writing from the ancient Greek poet Archilochus: 'A fox knows many things, but a hedgehog knows one big thing'.
Berlin used this idea to expound his theory that there are two ways people view and engage with the world. One group, the hedgehogs, 'relate everything to a central vision, one system … a single, universal, organising principle'. The other, the foxes, 'pursue many ends, often unrelated and even contradictory … related to no moral or aesthetic principle'.
He went on to categorise writers and philosophers as foxes or hedgehogs. The hedgehogs include Dante, Plato, Dostoevsky and Nietzsche, and the foxes Aristotle, Montaigne, Shakespeare and Joyce. The essay is not, however, about who is a hedgehog and who is a fox, but Count Lev Nikolaevich (Leo) Tolstoy's philosophy of history as laid out in War and Peace. Berlin uses the Archilochus quote simply to allow him to describe Tolstoy as a fox who wants to be a hedgehog and show how this is exhibited in War and Peace.
The hedgehog and fox divide maps comfortably on to investment management preferences. The hedgehogs have a system, an approach, an investment footprint that is circumscribed. Equity value investing is a good example. These hedgehogs invest in businesses when they are cheap relative to fundamental valuation metrics and sell when they become more than 'fairly' valued. It's a simple plan: buy low, sell higher.
Also, hedgehogs are investors who invest primarily in one strategy, one sector or one set of securities. Examples might be commercial property, or government bonds or momentum investing, where the mantra is if something's going up, buy it, if it's going down, sell it. The biggest risk for hedgehogs is a lack of diversification, which in exchange for greater upside potential brings greater downside risk.
The organising principle for the fox-like investor is expected long-term return wherever it comes from. This leads the fox to search for and take advantage of opportunities in all sectors and types of security, public markets, private investments, oil and gas, technology, equities, bonds, even options.
The biggest risk for foxes is straying into areas in which they have no deep understanding of what they are investing in and 'averaging down' by offsetting the big winners with a group of big losers.
We are what we are in the hedgehog-fox dichotomy. The best we can do is seek to understand ourselves and double down on the benefits and manage the risks of our prickly or vulpine tendencies.
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