A Year in Review
Lessons from multi-baggers and bag-holdings.
Six months have passed since I launched this Substack, with my first paid post going out on 27th June. So, I thought it was probably time to tally my calls and reflect on lessons and mistakes.
"To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes."
- George Soros
Before I get to investing, the little dude arriving on the scene taught Mia and me a few lessons.
Sleep is now a scarce commodity.
Parenting is 90% convincing a little human to eat when hungry and sleep when tired.
One laugh or smile makes all the sacrifices 100% worth it.
Investing Lessons
Framing lessons correctly helps ensure I'm improving my process rather than falling prey to "resulting".
"Poker players have a word for this: "resulting." When I started playing poker, more experienced players warned me about the dangers of resulting, cautioning me to resist the temptation to change my strategy just because a few hands didn't turn out well in the short run.
Resulting is a close companion of hindsight bias. Which is the tendency, after an outcome is known, to see the outcome as having been inevitable. When we say, "I should have known that would happen," or, "I should have seen it coming," we are succumbing to hindsight bias."
-Annie Duke
The prime example is avoiding the comfort of chasing the thing that is working, i.e. currently uranium or last year's coal. Sticking to a process and understanding the payoff is a few years out (usually three years in my experience before the payoff really shows up).
The Art of Execution was another book I tried to re-read on a international flight before writing this (unsuccessfully as flying with a vomiting baby is rough). If you haven’t read this book I highly recommend you do as its easily the top 3 investing books I’ve read and only 112 pages (you can read the PDF online).
Freeman-Shor studied over 1,800 investments made by fund managers under his leadership to see if there were similar habits that led to their success or failure. He shares the common habits found around losing and winning investments that improve and hurt returns.
While I didn’t find time to re-read the whole book I did find time to re-read the most important chapter in the book (Chapter 5, page 87).
The Connoisseurs: Enjoying Every Last Drop
They did not get paralysed by unexpected losses or carried away with victories.
They treated every investment like a vintage of wine: if it was off, they got
rid of it immediately, but if it was good they knew that it would only get
better with age. They usually drank the odd bottle now and then, to tide
them over – but otherwise they sat back and waited.
It takes a lot of nerve to do nothing or merely trim a position when winning.
Everything points to us being hard-wired to sell out of an investment when
we have made a reasonable profit.
Faced with the marshmallow test of the previous chapter, the Connoisseurs
had a simple way round it. These investors knew that they could not resist
the temptation to eat what was put in front of them. Their strategy was
therefore to take a small bite and leave some for later, extending and
maximising the pleasure of success as long as possible.
Taking small profits along the journey like a Connoisseur allows us to get
instant gratification without ruining our long-term wealth aspirations. This
‘trick’ is one that I have seen in action and which allowed my best investors
to stay in absolutely phenomenal winners.
I’m trying to internalise these insights, especially on scaling out over a prolonged period.