Thread by @heymaxkoh

The 3 part equation to make $$ from individual stocks:

$$ = % returns x Position size x Time

A short thread:

Many people only focus on the first part:

% returns.

They forget that results are also determined by:

- how big your positions are sized

- how long you hold the stock for

Here's 5 reasons why this equation helps you become a better investor:

1. Prevents you from chasing growth blindly

When you realize that % returns are just one part of the equation, you start to ask this question:

"How long can this growth sustain?"

Having that in mind will make you think twice before you buy the next hot stock.

2. Focus on durability

When you know that your results are affected by how long you hold something for, you start to think about:

- the business' competitive advantages

- how management is executing

Because only then will you have confidence to hold something for years.

3. Rank your positions based on conviction

Your total returns are not just affected by % gain and time.

Your position sizing matters too.

So thinking this way makes you consider whether you're putting enough $$ into a name... or whether you are putting too much too early.

4. You become more patient

When I first learnt this, I immediately stopped the mindless fiddling and just let my portfolio run.

Hence drawdowns become more bearable, and I don't feel the need to always be doing something.

You become more willing to sit on your ass.

5. You will not be afraid to average up

Many investors do not average up and buy more of a good company.

Why?

Because they are anchored to a previous low price.

So knowing that your position size matters, you'll be more willing to add up to a stock that has already gone up.

I hope this helps.

If you found this useful, follow me here at @heymaxkoh

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• how I attained financial freedom before age 30, while still working 9-5

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