Selected daily excerpts from the Knowledgebase -1
I’ve decided to do a daily small excerpt from the Knowledgebase as sort of a thought for the day. In many cases they will have extra thoughts of mine, or small updates. I hope you’ll find them interesting.
Here’s the first:
Not accepting that an investment could be a mistake as it continues to go down is a dangerous error, and could be very expensive. A big problem investors have is getting attached to their previous decisions and not being willing to consider that they may have made a mistake. Some of the most angry that I’ve seen people get on these boards is if you criticize a stock that they’ve fallen in love with. I try to always pay attention to criticism of a stock, to reevaluate my investments, and to get out if it turns out that I’ve made a mistake, or if the situation has changed. Which is why I rarely end up holding stocks for 5 or 10 years.
Sometimes changing your mind in the face of new evidence, and selling when necessary, is the most important thing you can do. If you are wrong, you can always buy back in. I think that being willing to change my mind in the face of new evidence is one of the most important skills I have. And learning that it’s okay to change your mind when appropriate is one of the most important things I try to teach on this board. Let me remind you that I sometimes make mistakes getting into a company (big mistakes, on occasion), but that I am willing to consider the possibility that I was wrong, and change my mind when I see that I actually was wrong. And that is very important. Although I realize that I make mistakes, I don’t regret my decisions. I figure I did the best I could at the time.
A corollary, that’s been made before on this board, is you have to be able to put in the effort to quickly recognize that a mistake’s been made. There was a long stretch where I wasn’t working, and I could spend a couple of hours a day doing stock research, and I could adjust quickly when needed. I did quite well.
Then I started working again, and didn’t have the cycles - I could spend maybe 15-30 minutes per day and a couple of hours per weekend. My portfolio style didn’t match my ability to keep up with it, and my performance suffered. In hindsight I should have changed to a lower-maintenance portfolio, perhaps with index funds and/or less concentration when I started working.
Hope this helps anyone who is changing lifestyles - I think the Saul approach requires acute attention to the daily happenings of your companies and their pricing. Cheers.
I always read anything on selling keenly to try and add to the mass of my own collected thoughts so thanks Saul.
I agree with para. 1. My own MO is that if a holding has fallen 11%, I force myself to do something: either buy more, or sell. That concentrates the mind and does not allow a situation to deteriorate.
I agree with para. 2 but with reservations. I do regret many decisions to sell where, because I failed to act like a director and correctly identify normal business ups and downs, I crystallized a tax liability which severely dented returns and even more severely dented what would have been longer-term compounded returns. I still wince when I see the names of certain companies where I made this error, and even made it not once but multiple times! A few of them should by now have been in my portfolio 20 years or more.
I regard my profit on an investment strictly as the profit after tax. Where I live, CGT has ranged between 18% and 40% over the years.