How Much Are You Hurting Your Returns?

Nicolai Tangen is the CEO of Norges Bank Investment Management, Norway's $1.4 trillion sovereign wealth fund. The fund supports roughly 30% of Norway’s annual budget. The fund owns 12,000 global equities, 1.5% of all global equity value, and 2.8% of all European equity value. They are massive.

Nicolai Tangen was recently interviewed on Colombia Business School's Value Investing Legends Podcast.

What could a concentrated microcap investor like me learn from a person managing $1.4 trillion across 12,000 global equities?

Oddly enough it was one of the best interviews I've heard in a long time. I listened to it twice.

He dropped this nugget of wisdom:

"The way to judge yourself is inertia analysis. Run your January 1 portfolio for the full year without any changes and compare it to your actual results. It's awful because some years you realize all you did was subtract value when you went into the office."

This is such a powerful statement.

How much are you hurting returns? This is a question every active investor should be asking themselves. 

Next year, track your January 1 portfolio with zero changes against your actual portfolio and judge your results.

Start journaling your investment decisions during the year and break each decision down by category. It might take more than one year but over time you will accumulate enough reps/decisions in each category so you can compare your decision making. You don’t know how to judge yourself without a large enough sample size of datapoints, reasoning, and emotional states when making decisions. You might find that generally you are “tinkering” with the portfolio far too much. You also might find you are bad or good in specific areas i.e. averaging up, averaging down, initial position sizing, selling too soon, etc. 

This technique will help you find the signal in the noise of your past investment experiences so you can grow as an investor. 

Here are some other great nuggets of wisdom from Nicolai Tangen:

“The fewer decisions you make the better they become.”

“When you are young (25) you are in such a hurry despite having your whole life ahead of you. When you are about to die like me (57) only then you suddenly develop long term thinking. (Laughing)”

“The biggest bias you have is you believe you don’t have any biases.”

“It’s interesting when you think about all the people in the world that make a living from getting information out of people - doctors, lawyers, journalists. Most don’t have any professional training on how to get information out of people and they should. We hire interrogators and forensic linguists to work with our portfolio managers so they learn how to get better information out of management, etc.” 

“If you call it gut feel no one believes in it but if you call it pattern recognition everyone believes in it even though it's the same thing”.

"9 out of 10 drowning victims in Norway are men. Why? Men take more risk."

"The two most important traits in high achievers. 1.) bounce back factor - how well you bounce back after a loss 2.) debrief process - learning from wins and losses."

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