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Active Patience

Active Patience means knowing what you are looking for and doing nothing until you find it.

The longer I invest the more I realize you get 1-2 great opportunities every few years. The rest of the time is spent wondering if you will ever get another great opportunity again and convincing yourself to own mediocre opportunities while you wait. Mediocrity is the price you pay for impatience. 

Great investors develop Active Patience. Active Patience means knowing what you are looking for and doing nothing until you find it. 

I mentioned Active Patience to Anthony Deden (he's also speaking at our Summit) and he responded,

"Active patience, yes. Think of an art collector wishing to add to his collection. He mostly sits around reading auction catalogs." 

His comment reminded me of this great quote by memorabilia collector Darren Rovell,  

"I want to be in a market where a specific collectible hasn't sold for three years but there are 11 guys total in the world who want it and I know I can name my price."

Active patience is not an inborn ability or skill. It is developed over years and decades in the following stages: 

  1. Developing Your Temperament – Finding out who you are.
  2. Finding Your Principles – Finding out what you believe.
  3. Committing to Your Principles – Living out what you believe.

Many investors never find out who they are. Even fewer figure out what they believe. Only a select few live out what they believe. 

Developing Your Temperament

Temperament means developing your views on risk, time horizons, volatility, position sizing, and value. It means determining what flavor of investing aligns with your natural inclinations so you can apply it consistently and successfully over time. 

I often think about how formative the first few investment decisions are in an investment journey. Whether your first investments were big wins or losses. The outcomes can send you up or down the risk tree permanently. They shape who you are. 

If you took risk and won in your early years like I did, even if you suffered big losses later like I did, you likely feel more comfortable taking risk today because you already proved to yourself it could be done. 

The opposite is also true.

If you took risk in your early years and lost, you likely have spent more time thinking about developing a strategy to protect yourself from ever feeling that way again. 

The feedback loops with investing are long. Developing your temperament and determining the type of investor you are takes time and reps. It takes loss. It takes you overreaching in risk, position sizing, trusting management, and many other factors. You have to push yourself to find your limits.

You must live through, trade through, invest through, many scenarios and circumstances to understand how you will react. 

You must experience the emotional highs and lows of greed and despair, several times, before you know how, and in what ways, to exploit these emotions in others for your own benefit. 

Investing is 5% intellect and 95% temperament. It means finding the strategy that will allow you to sit quietly when your emotions are screaming at you to do the wrong thing.

Only after you develop your temperament and figure out who you are, can you find your principles. 

Finding Your Principles

Anthony Deden also once told me, "Ian you aren't a microcap investor. You invest with a certain set of principles."

Principles are what guide us. They are what makes us unique.

It took me 15 years to develop my business principles around scarcity, survival, tailwinds, and discovery. 

It took 15 years of investing with different types of leaders, founders, CEO’s - speaking with them regularly, having dinner with them, truly knowing them, until I started seeing patterns in personality and character. 

Your principles are the qualities of a business that are mandatory. Principles allow you to say no to entire swaths of the investment universe.

Your principles are the qualities of men and women that are mandatory with whom you can partner and trust. Your principles allow you to say no to certain types of people. 

Principles allow you to say "Yes" very quickly because you know what you are looking for. Sometimes within 10 minutes you know "this is the one".

Principles allow you to sell in an instant when trust is broken in a business or person. 

I’ve found over the years that “value” is completely subjective. Your principles are the things YOU find valuable. They are the must haves that are necessary for you to buy and hold an investment. 

You can't expect others to completely understand your principles. It's how you can be in a room with 100 successful investors and each person is horrified at the next person's best idea. It's how you can be in a room with 100 investors that own the same stock, and each investor is holding for slightly different reasons. Your principles are your uniqueness.

It takes time and reps to find your principles. 

It took Buffett two decades to go from deep value to quality. 

It took Sleep and Zakaria almost a decade to go from "we will go anywhere in the world to find deep value" to only investing in business models that represented scale economics shared. 

It took Reece Duca at IGSB two decades to develop the expertise and insight to only invest in vertical software companies. Reece said in a recent interview,

“The first decade, we would look at and invest in all kinds of industries and all kinds of models within the industry. And I would say with hindsight, that was good, because it gave us an understanding of how things worked in manufacturing and how they worked in retail and how they worked in oil and gas, and... But what happens is you're not an expert in anything. In fact, your knowledge is pretty superficial of any particular model. And as I would say today is the single most important thing in determining whether a company is an exceptional company or not is going to be their business model. 
So by the time we got to the end of the second decade, we were focusing on essentially software companies. And over the next two decades, we essentially went from the combination of looking at consumer software companies and businesses software companies, basically to business B2B companies, essentially, then SaaS-based companies, then--we didn't distinguish between horizontal and vertical SaaS, but then we focused more on vertical SaaS than we did horizontal SaaS. And one of the byproducts of that was that we really developed expertise in how these models work."

Every investment you make ends up teaching you something about yourself. You can't rush it.

Pastor T.D. Jakes put it so beautifully, 

"Many people cannot find success because they lack the patience to go through the process to become who they want to be."

It takes time to find out who you are and what you believe.

After you find your principles, you must commit to them. 

Committing to Your Principles

“Until one is committed, there is hesitancy, the chance to draw back, always ineffectiveness. Concerning all acts of initiative and creation, there is one elementary truth the ignorance of which kills countless ideas and splendid plans: that the moment one definitely commits oneself, then providence moves too. All sorts of things occur to help one that would never otherwise have occurred.” -       William Hutchison Murray

You are the happiest when you are the most focused. You are the unhappiest when you are the most distracted.

If you want to be miserable, be halfway committed to things. 

Halfway committed to your business, halfway committed to your spouse, halfway committed to your faith, halfway committed to your kids, halfway committed to your process, halfway committed to your principles. 

The world wants us to believe "halfway committed" is freedom of choice. You are simply keeping your options open - the ability to change course. It seems more productive to have multiple options. It's quite the opposite. 

Halfway committed is misery because no one ever sees your full potential. Not even you. 

Total commitment is freedom. Total commitment is happiness. Once you find your principles, you must fully commit to them. Anything less is a waste of time. 

Distractions come in many different forms. The shiny new ideas that tantalize us but are missing our core principles for investment. The mind games our emotions (greed, fear, boredom) play on us making us sell positions/or buy new ones that we shouldn't. The opinions and criticisms we internalize from investors that haven't done the work. Distractions are anything that causes us to lose focus. 

Discipline means having the strength to say no to the thousands of things that distract you. 

Courage means having the strength to say yes to the few things that matter. 

Commitment means having unwavering confidence in yourself and your principles. 

I love this quote from Hall of Fame professional golfer Raymond Floyd, 

“Patience means knowing that your practice and hard work will pay off, and understanding that improvement often comes from plateaus rather than at a steady rate. 
A scorer is patient because he has faith in himself and in his approach. A golfer who believes in himself doesn't panic or lose his composure when things go wrong. He calmly rights the ship, bears down, and waits for things to go his way. Jack Nicklaus has often been admired for his patience on the golf course, and it's no coincidence that no player I've ever seen has believed in himself more than Jack.
The kind of confidence doesn't just happen. But to develop patience, it's important to have a plan for yourself that you believe in - whether it's for the way you want to swing or the strategy you want to employ. If you're truly committed to your plan you won't abandon it so easily when things go badly - especially if you accept that there will be shots and holes and rounds when things go badly. When you believe in your plan and believe in your ability to carry it out, patience is your ally."

Patience is an asset for those that know it’s only a matter of time. 

The longer you commit to your principles the more you naturally set up your life, network, habits to find ideas for you. 

You build your network, tools, screens, relationships like a spider builds a web. You keep building it out. Then one day something hits the web. You feel the tremor and you go look at what you caught. This is how the great ideas find you.

It might be months or maybe even years depending on your strategy before you find something new and actionable, but you remain confident because you know what you are looking for. 

When you fully understand active patience, you become an art collector. You see your portfolio as a collection of prized assets. Your intention with every purchase is to never sell unless your principles are broken, or you get your price. 

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