Earnings season is coming.
99% of investors behave like sheep in this period.
They're rattled by short term noise and follow the herd's opinions.
Don't be like them.
Here's 5 quick mental models to protect yourself from sheep mentality:
99% of investors behave like sheep in this period.
They're rattled by short term noise and follow the herd's opinions.
Don't be like them.
Here's 5 quick mental models to protect yourself from sheep mentality:
1. Think like a business owner
An owner’s mentality forces you to think hard about the important variables.
It helps you see further down the road.
And you stop worrying about quarterly increments.
An owner’s mentality forces you to think hard about the important variables.
It helps you see further down the road.
And you stop worrying about quarterly increments.
1b. Instead, you put more thought into stuff that matters.
Such as:
- barriers to entry
- competitive landscape/threat
- the ongoing capital needs
- the durability of the business
Such as:
- barriers to entry
- competitive landscape/threat
- the ongoing capital needs
- the durability of the business
2. Look beyond the numbers
Analysts tend to overweight what can be measured in numerical form.
Even when the key variables cannot easily be expressed in neat, crisp numbers.
Not everything that counts can be counted.
Analysts tend to overweight what can be measured in numerical form.
Even when the key variables cannot easily be expressed in neat, crisp numbers.
Not everything that counts can be counted.
3. Expect short term speed bumps
There will be instances where a company hits a speed bump and reports ugly “numbers".
Yet the long-term earnings power and franchise value remain well intact.
There will be instances where a company hits a speed bump and reports ugly “numbers".
Yet the long-term earnings power and franchise value remain well intact.
3b. Oftentimes a key cog of value is in a form that’s difficult to measure.
Examples include:
- brand
- mindshare/loyal customers
- exclusive distribution rights
- management quality
Numbers could be average. But the quality could still be high.
Examples include:
- brand
- mindshare/loyal customers
- exclusive distribution rights
- management quality
Numbers could be average. But the quality could still be high.
4. Hold businesses for decades not decimal seconds
Long term thinking leads to a natural decline in the level of importance you place on stuff like:
- earnings “beats”
- short-term headwinds
- temporary margin compression
Long term thinking leads to a natural decline in the level of importance you place on stuff like:
- earnings “beats”
- short-term headwinds
- temporary margin compression
4b. When you think long term...
You begin to realize that all of the above doesn’t really matter.
You’ll also start to question why others even ask for quarterly guidance.
You begin to realize that all of the above doesn’t really matter.
You’ll also start to question why others even ask for quarterly guidance.
5. Don't just look at results. Pay attention to execution
This quarter's results was already baked in months ago.
It's what the company is doing NOW that will affect their future outcome.
So focus more on management's actions.
Jeff Bezos says it best:
This quarter's results was already baked in months ago.
It's what the company is doing NOW that will affect their future outcome.
So focus more on management's actions.
Jeff Bezos says it best:
Credit to Allan Mecham of Arlington Value.
Most of the lessons above are taken directly from him.
He's one legendary investor that taught me how to stay grounded during earnings season.
Check out this article for more about his investing principles:
themarketplunger.com/2019/06/24/arl…
Most of the lessons above are taken directly from him.
He's one legendary investor that taught me how to stay grounded during earnings season.
Check out this article for more about his investing principles:
themarketplunger.com/2019/06/24/arl…
Recap:
5 quick tips to protect yourself from Sheep Mentality
1. Think like a business owner
2. Look beyond numbers
3. Expect short term speed bumps
4. Hold business for decades, not decimal seconds
5. Don't just look at results. Pay attention to execution
5 quick tips to protect yourself from Sheep Mentality
1. Think like a business owner
2. Look beyond numbers
3. Expect short term speed bumps
4. Hold business for decades, not decimal seconds
5. Don't just look at results. Pay attention to execution
If you find it useful, follow me here at @heymaxkoh
I share my journey of how I attained financial freedom before age 30, by investing in great businesses.
Also if you want to learn how to find 10 baggers and handle volatility...
Read this:
I share my journey of how I attained financial freedom before age 30, by investing in great businesses.
Also if you want to learn how to find 10 baggers and handle volatility...
Read this:
https://twitter.com/heymaxkoh/status/1448299477303894018?s=20
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