"Being Wrong and Still Making Money"

Hi all! I’ve been reading Saul’s board since late last summer, trying to catch up on all the important posts, starting right at the beginning. I really wanted to be sure I understood the “lay of the land” before I started posting. I am actually not quite yet caught up – only about 90% of the way there – but I have my reasons for wanting to share a few posts at this point. Looking at my schedule and the pace of my reading, I don’t think I’ll be caught up until early June, but I have some thoughts I wanted to share before then.

My investing style is quite different from Saul’s. All things being equal, you’re probably better off emulating Saul’s process than mine – he has the better historical record by far. My style allows me to sleep well at night, but I’m increasingly willing to let my style be influenced by Saul’s (although I can’t imagine mimicking it, elevated returns notwithstanding). I’m here to absorb what I can and see how much I can personally integrate profitably (plus pick up stock ideas for further research). One nice thing, though, is that I think I can contribute here as well. Despite differing styles, Saul and I have independently reached some of the same conclusions. Two of my largest holdings (in a diversified, not concentrated, portfolio) are Infinera and Skyworks Solutions. I know both companies well, and hope to share my knowledge here. Every quarter after earnings are reported, I study these companies’ results and try to produce an insightful analysis of each. Sometimes “verbose” might be a better description, but I strive to create something useful. This board seems to have a MUCH better attention span than many, so I’m hopeful my lengthy contributions will be appreciated (including this one). In the next few weeks, I’m going to try to post here some key thoughts from prior analyses of INFN and SWKS. I hope you find them both useful and a good lead-in to more current analysis. The coverage here of INFN and SWKS is pretty impressive already. I’ll try to supplement rather than duplicate (but please recognize - at least for the next couple of months - I won’t have read all the current posts).

But I’m going to post something completely different today. During my catch-up reading, I found many interesting, well-thought-out, and well-regarded posts about companies that fit Saul’s criteria. On the other hand, posts that analyzed Saul’s process – especially those that tried to attach labels – were not so well-received (although, frankly, I think that some of this board’s most insightful posts were the ones that highlighted subtle aspects of Saul’s “secret sauce”, if you will, trying to identify the characteristics that make him as successful as he is). I am NOT here to try to attach any labels to Saul. Labels present a caricature and Saul is far more nuanced. However, I recently ran across an article that tried to partition professional investors – and their trading strategies – into five categories, of which three were successful and two not (in the author’s opinion). As I read the descriptions, I saw elements of Saul’s philosophy (as well as Tom Engle’s) among the winning strategies (or “tribes”, using the author’s parlance) and also recognized things Saul has advised us NOT to do among the losing strategies. Again, I’m not trying to pigeonhole anyone. Maybe my first post on this board will be a total faux pas, and I’ll regret it. I hope you’ll read it and think about it. If you see yourself as aligned with a losing “tribe”, I hope you’ll contemplate which aspects of winning “tribe” strategy might best fit your personal style so they can be most easily adopted. If my post generates a few insightful posts, I’m happy for that. If it generates a maelstrom of posts, I’ve probably done the board a disservice. I’m hoping for the former, of course. Please think twice before responding.

Before I describe the article, let me quickly describe the source. AAII Journal is a monthly publication of the American Association of Individual Investors. After a couple years of subscription, I upgraded to Life Membership. That was back in the ‘80s. I feel it was money well-spent, although I haven’t paid attention to what the current cost would be (so I don’t know if I’d consider it a bargain today). AAII has a stock-picking service, but I didn’t find it worked well for me. It might work very well for others, but I can assure you that their style is not Saul-like. I don’t want to portray it negatively, but it you’re drawn to Saul’s style, it probably won’t appeal to you. The AAII Journal, though, is light on stock recommendations and heavy on personal finance issues (investing, retirement, insurance, tax, estate planning and the like). It is too scholarly to compete with a magazine like “Money”, but not scholarly enough to be regarded by academics. That in-between ground is a sweet spot for me, but obviously not for everyone (that’s what “Money” is for, and that’s who Suze Orman is trying to reach, right?). I still read AAII, but I align myself much more closely with The Motley Fool these days.

Lee Freeman-Shor is the author of a book called “The Art of Execution” (Harriman House 2015). I’ve not read the book. He also wrote an AAII Journal article called “Being Wrong and Still Making Money”, which is based on the research that spawned the book. The author managed professional money managers, and analyzed their trading history, trying to identify successful and unsuccessful strategies. Out of this research, he identified five “tribes”. [The following italicized descriptions are quoted from the article.]

Losing Tribes
Rabbits – Rabbits tend to cling to their first impressions of a stock and do not like being wrong. When losing money, Rabbits neither buy more nor sell shares.
Raiders – Raiders like nothing better than taking a profit as soon as practical. They prefer taking a sure profit than risking a loss by holding on to their shares for an even bigger gain.

Winning Tribes
Assassins – Assassins sell stocks that have fallen by a prespecified amount or that have declined by any amount and showed no signs of recovery after a certain period of time.
Hunters – Hunters invest a lesser amount at the outset with the intent of acquiring significantly more shares if the stock’s price falls. If their conviction in a stock lessens for a good reason, they sell their shares.
Connoisseurs – Connoisseurs make long-term, high conviction investments in companies with very predictable earnings. They take small profits as the stock appreciates, rather than selling entirely out of the position.

To be true to the article’s intent, you should examine your proclivities within the framework of: When I’m losing, is my behavior more like a “Rabbit” or an “Assassin” or a “Hunter”; when I’m winning, am I more like a “Raider” or a “Connoisseur”? Then you can smile to yourself and ask, “What would Saul do?”. If you study the Knowledgebase, he’s probably already told you – at least in broad brushstrokes – what he would do.

Especially for the next couple of months, if you want me to respond to your post, please respond to MY post, not just any post in a thread I’ve started. That’s the only way I’ll see your post in a timely fashion.

Thanks and best wishes,
TMFDatabaseBob (recovering Rabbit)
Peace on Earth


Bob, first, welcome to the board. I am really glad you are here.

Speaking selfishly - I can’t wait to see more of your coverage analysis on Infinera and Skyworks.

Folks, Bob here is an amazing writer and he also has a penchant for numbers. I know I said this before but I am so glad you’re here.


An aspiring connoisseur


Hunters – Hunters invest a lesser amount at the outset with the intent of acquiring significantly more shares if the stock’s price falls. If their conviction in a stock lessens for a good reason, they sell their shares.
Connoisseurs – Connoisseurs make long-term, high conviction investments in companies with very predictable earnings. They take small profits as the stock appreciates, rather than selling entirely out of the position.

Hi Bob, Welcome to the board!

I see elements of both of the above in my investing style, but neither of them describes what I do accurately. I bolded what I see in myself. For example, I started small with AMZN, SBNY, SHOP, etc but NOT with the intention of buying more if the stock FALLS. It was to try out and get a feel for it. I then bought more SBNY as it has gradually worked its way up (it’s gotten to be my sixth largest now), and added a little to SHOP as it went up too. I keep adding to AMZN all the time, up or down. I do take small profits if a position appreciates to where it becomes too large.

Thanks for your comments



I believe that to be successful in the market one cannot mix and match, one has to have a philosophy of the market on which to build strategy and tactics. For some people it seems to come naturally or maybe they had good teachers. For me it took a long time and lots of mistakes. BTW, I too subscribed to AAII as a novice eager to learn. As I remember it, they had lots of pieces on tactics but nothing on the philosophy of investing, it could be my faulty memory. In any case, when I became convinced that their mission in life was selling books I ended my subscription. BTW, I understand AAII is a terrific source of market data. I try to get all my data for free. Cutting costs frees up money for investing. This is generally why I don’t buy investing “products” but shares of the companies directly through a low cost broker.

There are two kinds of “being wrong,” the normal kind and the bad kind. You wind up in a loosing tribe when you don’t have a proper philosophy of the market. Notice I say “a proper philosophy,” not “the right philosophy.” Whatever works for you is good. A well working market needs variety. To discover market philosophies it’s best to read the successful investors like Philip Fischer, Peter Lynch, and Warren Buffett. They won’t all reveal their secrets directly, you have to dig them out. After doing the archeology you have to create your own or adopt a winning philosophy. That’s how you get rid of “bad” being wrong.

The “normal” being wrong is just the impossibility of predicting the future. If something doesn’t work, don’t do like politicians applying more of the same because the first dose was not enough. Live with the fact that the future is uncertain, have tactics to deal with it. In fact, I have developed a method of trading that just reacts to price based on JP Morgan’s Law of Markets. When asked what the market would do he replied: “It will fluctuate.” While it works, I don’t think it’s the best philosophy of investing.

Some of the best investors and speculators advise not to invest on tips. For me a “tip” is not just something someone whispers in your ear, it also includes a lot of stock market advice like Cramer, IBD, and other sources of “ideas.” This list also includes boards like this one but Saul and some services have a saving grace, they track the tip and tell you when they change their mind! This is why they can be trusted! Next time Saul changes his mind, don’t scold him. Thank him! He is correcting a normal mistake.

Denny Schlesinger


It is great to have you here. I love your posts.

Recovering Rabbit moving towards a hunter and assassin.

Thanks for your kind welcoming words, Saul, Andy, and Mike.

Denny, I think you’re being harsh regarding AAII, but I’m going to let the topic go. This isn’t the right forum. One can say harsh things about TMF’s marketing (and let’s let that topic drop too), but I think we all appreciate what they offer. I think it’s best to look at organizations (and people) as unified wholes. If the good outweighs the bad, accept the whole package.

I think your distinction about different types of “being wrong” is valuable, and I hope your message was clearly heard.

I also agree that winning strategies need to be personal because a person will implement them, and that person has to “own” the strategy to implement it consistently - the consistency is important.

The way TMF boards are structured fosters accountability, and I’m sure that’s deliberate. That helps mitigate some of the issues surrounding “tips” that you raise. But I think the more critical difference here is that this community is advised, by Saul, to perform their own due diligence. In most cases beyond this forum, tips are offered with the expectation (perhaps even “hope”, if the tipster’s motives are impure) that they’ll be blindly followed. On this board, the willingness of many people to share the results of their due diligence is outstanding, and Saul has collected quite a group of impressive thinkers (you included, Denny). I know I’m going to learn a lot here and I look forward to finishing catching up with older posts - and then becoming a more active participant - soon (this recent flurry of posts notwithstanding).

Back to making philosophies personal, I mentioned earlier my hopes to integrate aspects of Saul’s philosophy into my own to the extent I can do it profitably. If I can do that, that will be the most valuable gift that this board can give me - not some “tip”, regardless of how profitable the result. The gift of improving one’s philosophies and strategies seems very well-aligned with Saul’s intention for this board. Saul, I definitely appreciate what you’ve created here. And I also appreciate that it has been, and will be, the entire community here that teaches me, not just Saul.

Thanks and best wishes,
Peace on Earth


Bob, thanks for the great post, and the ones that quickly followed, I have admired your work on other boards. I really like the note on tribes and have added it to my “Evernote”. If any of you have not tried evernote, give it a shot - very easy way to organize quote and thoughts you like, and it is free until you need a jillon quotes or something.


Another great tools is this

created by Neil (of this board). Amazing free tool that let’s you easily bookmark posts on MF and other places. Has tags and searches for future reference.


Databasebob was also one of the first Top Fools in the CAPS game!