Don’t be an ideologue

  • Keep religion and dogma out of your financial decisions.

  • Be mindful of cognitive rigidity, and commitment and consistency bias.

  • Don’t be arrogant. If you get spanked on the market, you might want to regroup and reassess. Maybe the market is trying to teach you something. Don’t do this.

  • Emotions are good if used properly. Use pain to learn from your own mistakes and envy to learn from the successes of others.

  • Be nimble and protect your downside. There’s always something new to learn. Good role models: @hkuppy, @puppyeh1, @OtterMarket, or @deepvalueco.

Don’t rush

  • Markets eventually get it right, but in the short-term uncertainty is often confused with risk.

  • Avoid risk but bask in uncertainty.

  • You don’t have to be early. Wait for the opportunity and move in decisively: timing beats speed and precision beats power.

  • Exemple: $HALL, microcap in specialty insurance. Market was overly spooked by temporary problems. The correct move was to wait a quarter to validate return to normal before moving in, no need to gamble. The company is so small, the market is slow enough to react, and the window of opportunity was there for more than a few days.

Don’t be stupid

  • Being smart doesn’t decrease the likelihood of doing stupid shit.

  • Stupidity is NOT the absence of intelligence.

  • Listen to The Psychology of Human Misjudgement by Charlie Munger about 12 times (not easy to digest).

  • Watch your emotions, especially greed and envy. Warren Buffett: “Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble.”

  • Most of all, watch out for lollapaloozas. The impact of multiple destabilizing events is not additive, it is multiplicative. When in doubt, stand still and do FUCKING NOTHING.

  • Having an explicit investing checklist is an easy way to avoid stupid decisions. See chapter 11 of Guy Spier’s book.

  • Finally, as Michael Mauboussin said in Think Twice: “In a probabilistic environment, you are better aerved by focusing on the process by which you make a decision than on the outcome”. Attachement to the outcome will create an attachement to the emotions linked to the outcome, and you will be led by these emotions instead of your rational mind.

Be an expert or be cheap

  • Listen to this lecture on Value Investing by Bruce Greenwald, and then listen to this series of lectures from 2010 (awful image quality, but worth it). Read & listen to everything from Joel Greenblatt and Tobias Carlisle.

  • You can be a specialist, or you can pay so cheap a price that the distribution of outcomes heavily favors the good ones.

  • Inversely, avoid paying up or buying a popular stock if you’re not an expert about the industry and the business in question, and if you don’t have a deep and differentiated insight.

  • Even if you pay a cheap price, do your diligence: read the most recent 10K and three 10Qs, read the 10Ks of the last 7 years, read the recent 10Ks of competitors, research the management, look for write-ups or other value investors opinions, etc.

  • Diversification is a hedge against your own ignorance. Your strategy there should be a direct consequence of where you stand on expertise vs cheapness.

Play your own game

  • It’s OK to source ideas from other people, but you don’t know what game they’re playing.

  • People have an incentive to share their longs, they don’t have an incentive to tell you that they changed their mind and moved on.

  • Some very rare people play the infinite game (Mohnish Pabrai and Guy Spier are famous examples; another, more accessible one, is @IgnoreNarrative, imho). Pay extra attention to what they say.

  • CEOs of companies also play their own game. Some of them play the infinite one (e.g. Warren Buffett, Mark Leonard). Find more of those. As an investor, understanding the CEO’s game is part of your job.

  • Think about the game you want to play (hint: long-term games are more interesting and rewarding). Use a relevant metric to track your progress (hint #2: the best metric for you depends on the game you choose to play).

Categories of investments I’m interested in (inspired by Mohnish Pabrai)

  • Good business with a good leader and good tailwinds: $AEP.V, $EMO.V

  • Reversion to the mean (overly punished by market): $HALL

  • Relatively cheap turn-arounds: $JAKK, $ATTO, $IOU.V

  • Macro bets: $GFP.V, energy stocks

  • Compounders (high ROIC + high reinvestment rate): $WILD.TO

  • Spawners at a discount: $BABA, $PROSY

  • Deep value: $CAF.V

  • Growth with a moat: $PNG.V

Be sure to treat each stock according to the category it belongs to (timing, sizing, holding period, price paid, tax vs non-tax account, etc.)

Until next time, stay cool & stay invested!