7 lessons from 12 full-time investors:
On their research process, mental habits, and time management.
What they have in common:
- full time, private investors
- manage their own $$
- independently wealthy
- started with small capital base
A THREAD:
On their research process, mental habits, and time management.
What they have in common:
- full time, private investors
- manage their own $$
- independently wealthy
- started with small capital base
A THREAD:
1. They make their own notes
They write things down, even if they never read them again.
Because the magic of making their own notes lies in the process of doing it.
Not in the actual notes themselves.
Making notes helps them discover what they really think about a company.
They write things down, even if they never read them again.
Because the magic of making their own notes lies in the process of doing it.
Not in the actual notes themselves.
Making notes helps them discover what they really think about a company.
From Vernon, one of the private investors in this study:
“The notes help me to maintain mental consistency over time.
They are a stabilising influence when some news comes out which might tempt me to trade impulsively.”
“The notes help me to maintain mental consistency over time.
They are a stabilising influence when some news comes out which might tempt me to trade impulsively.”
2. Use of message boards
Several (but not all) of these investor use online message boards and forums.
Being a private investor can be a lonely journey.
So they bounce investing ideas and network on these forums.
But it's not just a cure for loneliness...
Several (but not all) of these investor use online message boards and forums.
Being a private investor can be a lonely journey.
So they bounce investing ideas and network on these forums.
But it's not just a cure for loneliness...
Typing their ideas publicly forces them to elaborate on their arguments.
This helps the knowledge "stick".
The more they explain something in their own words, the more connections they create with their prior knowledge.
So they can remember it for a longer time.
This helps the knowledge "stick".
The more they explain something in their own words, the more connections they create with their prior knowledge.
So they can remember it for a longer time.
3. Think in terms of return on time invested
The scarcest resource for successful investors is not money, but attention.
For every action they choose to take, there is a trade off.
So they ask themselves this question:
"What can I choose to neglect and overlook?"
The scarcest resource for successful investors is not money, but attention.
For every action they choose to take, there is a trade off.
So they ask themselves this question:
"What can I choose to neglect and overlook?"
This forces them to hone in on what is truly important.
It increases their return per unit of time.
“Time is a limited resource with strongly diminishing returns.
The first hour you spend researching a company is much more important than the tenth hour."
It increases their return per unit of time.
“Time is a limited resource with strongly diminishing returns.
The first hour you spend researching a company is much more important than the tenth hour."
4. Aware of their biases
The best investors know how to balance defence and offence.
They know when to stop researching an existing position, and move on to another company.
New information may make you more convicted...
But it doesn't always make your judgment more accurate.
The best investors know how to balance defence and offence.
They know when to stop researching an existing position, and move on to another company.
New information may make you more convicted...
But it doesn't always make your judgment more accurate.
A quote from an investor in the study:
"Many investors are management groupies.
They spend too much time on their favourite companies, posting on bulletin boards and going to AGMs.
They are squandering time which would be better spent looking for new ideas."
"Many investors are management groupies.
They spend too much time on their favourite companies, posting on bulletin boards and going to AGMs.
They are squandering time which would be better spent looking for new ideas."
5. The goal of research is NOT to know everything about the company
Every investigation has a time opportunity cost.
Your aim is NOT to check all possible hygiene factors.
But to check enough to reduce your error rate to an acceptable level.
Every investigation has a time opportunity cost.
Your aim is NOT to check all possible hygiene factors.
But to check enough to reduce your error rate to an acceptable level.
Psychological research suggests:
In many contexts, decisions are best made with no more than 5-7 points of information.
Any more information beyond that does not significantly improve decisions.
It may even degrade them.
In many contexts, decisions are best made with no more than 5-7 points of information.
Any more information beyond that does not significantly improve decisions.
It may even degrade them.
6. They focus on what's knowable AND important.
Buffett talks about this.
In investing research, there are 2 types of information:
- Important
- Knowable
Focus on the intersection of BOTH.
You don't need to know everything about a company to make money from it.
Buffett talks about this.
In investing research, there are 2 types of information:
- Important
- Knowable
Focus on the intersection of BOTH.
You don't need to know everything about a company to make money from it.
“Focus on things which are knowable:
That is, things where research can plausibly give you superior insight
For example, the microeconomic advantages of a particular company.
Ignore things which are not knowable, for example, general macroeconomic predictions."
That is, things where research can plausibly give you superior insight
For example, the microeconomic advantages of a particular company.
Ignore things which are not knowable, for example, general macroeconomic predictions."
7. They search for truth, not agreement
An investor’s thinking should be focused on a search for the truth, rather than supporting prior affiliations.
The best investors seek for disconfirming evidence.
Do not allow where you sit to determine how you think.
An investor’s thinking should be focused on a search for the truth, rather than supporting prior affiliations.
The best investors seek for disconfirming evidence.
Do not allow where you sit to determine how you think.
From a private investor named Bill:
"It's always easy to think of reasons to buy a company. That is what most tipsters do.
To make good decisions, you need to look actively for reasons not to buy a company.
And then invest only in those where you can live with those reasons"
"It's always easy to think of reasons to buy a company. That is what most tipsters do.
To make good decisions, you need to look actively for reasons not to buy a company.
And then invest only in those where you can live with those reasons"
The above lessons are taken from this book, Free Capital.
It covers the mental habits and practices of 12 private, full time investors.
If you've always wanted to know how a full time investor spends his/her time...
How they think...
What they struggle with...
Read this.
It covers the mental habits and practices of 12 private, full time investors.
If you've always wanted to know how a full time investor spends his/her time...
How they think...
What they struggle with...
Read this.
Recap of the 7 lessons:
1. They make their own notes
2. Use of message boards
3. Think in terms of return on time
4. Aware of personal biases
5. You don't need to know everything about the company
6. Focus on what's knowable & important
7. Search for truth, not agreement
1. They make their own notes
2. Use of message boards
3. Think in terms of return on time
4. Aware of personal biases
5. You don't need to know everything about the company
6. Focus on what's knowable & important
7. Search for truth, not agreement
Find this useful?
Then follow me here at @heymaxkoh for more investing frameworks.
I also share my journey of how I attained financial freedom before age 30, through investing.
Also check out this thread on how to read an annual report in 1 hour:
Then follow me here at @heymaxkoh for more investing frameworks.
I also share my journey of how I attained financial freedom before age 30, through investing.
Also check out this thread on how to read an annual report in 1 hour:
https://twitter.com/heymaxkoh/status/1451134420358860808?s=20
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