SUMMIT
In the moment, it’s hard to understand why we go through hardship. Only years later after you’ve persevered, do you look back and realize the obstacle or struggle you faced was preparing you for something greater. If history has taught us anything it’s that the more you overcome, the more you will overcome.
Your investing strategy is a result of what you learn through reading and mentors combined with your past experiences. Often times experiences from your past (even non-investment experiences) can shape the type of investor you will ultimately become.
A few years ago, I lost my mother in a freak accident. One day she was here and the next day she was gone. After the accident, I spent a lot of time reflecting on her life and how she made me a better person. She was a great mother to my sister and I, and a great wife to my father. Her strengths were abundant and obvious, and I try my best to live my life like she is looking over my shoulder. Interestingly, one of the greatest impacts she had on me professionally wasn’t through her many strengths… but through her one weakness.
Worry. My mother was a worrier. Although it improved later in her life, my mother worried- about seemingly everything- during my childhood and teenage years. As a child, this wasn’t something I recognized because, well… I was a kid. However, as a teenager I started to notice her worrying and it started to impact me. I loathed the fact that she worried so much about so many things. When a person is exposed to a set of behaviors over the course of several years, you consciously or subconsciously assume those behaviors or go in the complete opposite direction.
Me? I went in the opposite direction. I didn’t worry about anything. This wasn’t to say I was reckless. Instead, it was more of a choice that I made to focus and work hard- but not worry about the outcome.
This mindset would ultimately impact my approach to investing. This isn’t hubris disguised in a thin veil of humility, but I’ve always had the ability to “bet big” when I found a worthy investment. I have no issues holding 50% of my net worth in two positions. I can sleep at night. Many people cannot. In the end, as long as I know my positions better than most, I don’t waste a lot of time worrying about the outcome. When I sit on the proverbial “psychologist’s couch,” I know that my mother has played a big role.. in a good way. The years of witnessing her worry ultimately produced a strength to bet big on my convictions.
You may also have stories from your past that have developed you into the investor you are today. I’ve found it’s best not to fight it, but lean into it. Embrace it.
Early in my investment career, everything I read preached the need for diversification. I thought maybe I did have it wrong, so I entered a phase where I genuinely attempted to be more diversified- and owned fifteen companies of equal proportion. This phase of diversification lasted a whopping 30 days.
It drove me insane.
There were always 4-6 businesses of the 15 that I really believed in more than the rest. I recall the regret I felt when realizing how little I would make if one of these 4-6 “high conviction” positions did really well. If a 7% position would triple, it would have a 14% effect on my overall portfolio. This didn’t seem like a really good return for being right. Sure, I could own 15 positions with unequal weighting, but then I would have a few 3% positions in the portfolio. What’s the point of that? I might as well just hold cash or own more of what I like most. My diversification experiment didn’t last long because it wasn’t who I was and didn’t give me the peace of mind that others promised it would.
But- this isn’t an article about concentration vs. diversification. This also isn’t an article about how you should invest like me because everyone does it differently.
Buffett does it his way while Schloss did it another way. Ichan does it his way while Lynch does it another way. Tepper does it his way while Andreessen does it another. Some are long-term. Some are short-term. Some are value. Some are growth. Some are activist. Some bet on change. Some bet on things that won’t change. The greatest investors ever have opposing strategies. Within the world of “value investing” alone, there are hundreds of successful iterations. If every value investor was investing the exact same way, it would be the most crowded trade around–which is rather ironic when you think about it.
Just like the way water flows into a depression, as you mature as an investor- lean in to what you’ve learned from past experiences– and you will find your niche. Use caution when mimicking the investment styles of others, as it may not be the right one for you. You can do it your own way and be successful. Having peace of mind is powerful and it’s one of the small things that has made a big difference in my returns.
You can read Part One of Small Things that Make a Big Difference [HERE].
MicroCapClub is an exclusive forum for experienced microcap investors focused on microcap companies (sub $300m market cap) trading on United States, Canadian, UK, and Australian markets. MicroCapClub was created to be a platform for experienced microcap investors to share and discuss stock ideas. Investors can join our community by applying to become a member or subscribing to gain instant view only access. MicroCapClub’s mission is to foster the highest quality microcap investor Community, produce Educational content for investors, and promote better Leadership in the microcap arena. If you enjoy the search for the next great company, Join Us.
Comments 5
Ian, I swear reading this article I felt like I was reading about myself. I too have parents who are incessant worriers, in fact it runs in the extended family. I went the non-worry side too and have similar allocations to you at times. I just could not diversify beyond a few positions because that would mean diluting my research time that I can allocate to each. The greed of losing big gains with small allocations bothered me too. But one has to careful that their concentration does not rise from their laziness. In the end if one has dug deep into his/her investment idea it brings about its own sense of calm. Although there will always be unknowable unknowns. Thank you writing this piece, good to know that I am not alone in my investment style. Like you said there are innumerable investment styles that make money. To each his/her own. Cheers.
Author
Abi, thanks for the comment.
Excellent article. Worry versus peace of mind are crucial in investing. What do you do at the bottom of the market: sell, hold or buy more? Much depends on personality.
In terms of running businesses, I’ve found that employees who worry a lot are better than those who have confidence. In terms of female company, and I’m more inclined toward girlfriends than wives, although I have had a couple of wives, women who worry make better partners than women who don’t, although women who don’t can be more fun. Women who worry are more focused on me, which I kind of like.
Worry means people care. In business, I’ve found that the most important people to find, to serve, are those who care. About something, anything. Suppliers who care, customers who care, employees who care. The one thing you don’t want is competitors who care.
I appreciated too the exploration of personality versus strategy. Few strategies work in investing, but among those that do there is little commonality. Except buying good companies when they are relatively cheap and holding them for decades. That works but we all would like to get richer faster than that. Do you invest because you love it or because you love money? Both matter, but great investors love the process, the challenge, more than the money. Warren Buffett says that his number one obstacle to performance is the amount of money at his disposal. Yet he leverages up with both debt and insurance company unearned premiums by about 160%.
Have you noticed the two articles in the last 24 hours in the Wall Street Journal and the New York Times about how computers are supplanting humans in investing, just like in self-driving cars? Computers remove useless human characteristics like worry, confidence, make millions of calculations a second, each developed because it gives, over thousands of transactions, a microscopic edge over humans. Artificial intelligence will dramatically change our world over the next thirty years, including investing. Thirty years from now, at least 95% of all decisions in the market will be driven by computers competing agains one another. Of the remaining 5% most will underperform computers.
So here’s a question for you that you will immediately know the answer to: If Warren Buffett knew that computers would generate for him higher returns than he own decisions, would he abdicate to computers. The answer, I think, is no. Just like a chess player who is the best human chess player in the world, knew that a computer could beat him or her, who they give up chess? No, they do it because they love the game. And I’d also bet that the best human chess player in the world is a worrier.
Author
Thanks Rod. I also think there is a big difference between worry and what Jim Collins would call productive paranoia. I think the latter is healthy and necessary to verify your thesis.
Wow Ian!! I think this is the most uplifting post from you so far 🙂 Perfect for starting my day 🙂
I can relate to it very well. The beginning of your post reminds me of “Connecting the dots”..Steve Job’s Stanford speech.
Regarding the choice you made when you were young: ” Instead, it was more of a choice that I made to focus and work hard- but not worry about the outcome.” reminds me of Nishkam Karma , one of the key teachings of Bhagavad Gita.
It is very interesting to know how the adversities or painful situations can teach us “how ‘not’ to become that person” since we usually we look for positive role models/experiences in life. Very profound indeed!!
Thank you!!