1/13 Too many investors throw away their Good Luck.
Since Good Luck in Investing can be very path dependent, this has massive effects on long-term compounding.
Since Good Luck in Investing can be very path dependent, this has massive effects on long-term compounding.
2/13 But what is Good Luck in Investing? It’s finding yourself in a stock – if you knew the future – that compounds at an impressive rate for a long time. Therefore, today’s price with 20/20 hindsight proved very cheap years from now.
3/13 Unless you are a Coffee Can investor (buy it and forget it), it takes skill to hold on that Undervalued Compounder with Perfect Hindsight for years and years.
4/13 Since even long-term Winners experience gut-wrenching drawdowns and periods of full valuations (based on consensus understanding), you have to create a MENTAL FLOOD WALL to withstand emotional selling pressure. These “flood walls” need to be substantial.
5/13 How do you form a MENTAL FLOOD WALL? Identifying the “SPECIALNESS” of the business. It’s usually some combination of a superior business model, superb management, and blue sky opportunity.
6/13 A MENTAL FLOOD WALL requires extreme QUALITATIVE analysis. Feed that analysis to your RESIDUAL calculation in a DCF if necessary. And admit to yourself that SPECIALNESS can become even more SPECIAL (you may not even see it right away).
7/13 After all, even if you had the Vision Thing when you bought XYZ Corp., you may not enjoy investing psychic powers for XYZ every quarter.
8/13 A MENTAL FLOOD WALL is not all stock analysis. It’s also about honesty. Stop thinking you can trade around a position to max gains. Stop worrying about getting the last 10 cents in the near term (you’ll miss $$$ in the LT). Don’t kill yourself over 30% or > moves in a stock.
9/13 Of course, it helps to buy a great company during the Great Recession or a market correction. The price you pay makes a big difference between a 10x winner and a 4x winner. Still, you can’t multi-bag a stock you sold too soon – remember, Good Luck is path dependent.
10/13 Sometimes I feel like the Chris Moneymaker of microcaps but with a bland name (I should officially make my middle name $XPEL). Literally 30 to 1 ratio I get asked, “Are you trimming yet?” rather than “Why are you holding?”
11/13 You also hold because you love the game and the process as much as you love the results (actually, you love the game more than the results). Happy, contented people can sit still. Greed or fear urge you to shift and change and act … which you’ll later regret.
12/13 Finally, follow the advice of Ben Franklin. He thought people who write angry letters should hold off sending them until they’ve carefully considered the contents (let passionate emotions settle down).
13/13 For investing that means you have to resist the temptation to sell a multi-bag winner today based on some short-term reason (full valuation, bad quarter, disappointing guidance). Give time for your brain to remind you of the company’s SPECIALNESS.
