Ways to be a better investor

Investment Analysis Clubs Saul’s Investing Discussions
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I’ve been thinking about writing this post for more than a month, but I just haven’t put in the time. This post is really a list of things that I think are related to making a person a better investor, a better decision maker, and maybe even a more happy person in life. I think a lot of Saul’s success has to do with some of the things on this list.

  1. Distinguishing facts from opinions
    Everybody has opinions. If you watch CNBC and don’t have a good skill in distinguishing a fact from an opinion then you will go probably nuts and you will probably make poor investing decisions. Many people learned the accept opinions as facts from a young age. When you are a little kid then you don’t know a lot yet so you have a tendency to ask a lot of questions to get the answers. If your parents encouraged you to ask question and “rewarded” you for this behavior then probably continued to ask questions. If they took the time to answer your questions when they knew the answer and admit to you when they didn’t know the answer then you learned a lot. If they said “because I said so” when you dug deeper by asking why then they squashed your curiosity and discouraged you from questioning things and authority figures. Being able to easily distinguish a fact from an opinion is a very important skill in investing and in life.

  2. Don’t assume that someone else knows more than you even if they do
    Let people convince you based on their logic and on the facts not based on their status as an authority figure, their referencing some other authority figure, or some unverifiable bit of information. Blind faith is essential for religion but it can be very detrimental to your investing returns.

  3. Question facts, question assumptions, question authority figures
    If you don’t question everything, including your own assumptions, then you will end up making logic errors which leads to uninformed decisions. Even worse, if you make assumptions that are incorrect then you will likely build on those assumptions leading you make errors on top of errors and so on.

  4. Constantly question your own assumptions, information, and beliefs
    The person who knows everything can learn nothing. Be humble about your own beliefs and convictions. Accept that they might be wrong. Try to prove them wrong. This can help you not to fall in love with a stock/company.

  5. Accept that there are many unknowns
    To make investment decisions, you need to be able to make the best decisions that you can with incomplete information. Some things are unknowable. Some things are too time consuming or too expensive to uncover. Accept that you can’t know everything and you will not be paralyzed from taking the necessary risks and pulling the trigger even when you don’t know everything. If you start to invent answers then you’ll probably get into trouble.

  6. Distinguish important information from irrelevant information
    Some things are interesting and might seem important but are largely irrelevant. Learn what will impact the success of the companies that you are considering.

  7. Don’t be too pessimistic
    If you are this way then you might never make an investment.

  8. Accept that you will miss opportunities
    Having a fear of missing out (FOMO) is not good for investing results. You will tend to buy stocks because you are afraid that it might go up without you. This is a major contributor to the formation of bubbles. For the past 4 months or so almost every time I talked to someone about investing that person asked my what I think about Bitcoin. Almost every time. Most people really don’t what to miss out. They would rather take an unquantified risk then miss out. This is why many people are buying Bitcoin now.

  9. Be willing to take a loss
    Hanging on to a stock because you don’t want to take a loss is a really bad idea. Saul talks about this one a lot. Instead think about what is the best decision for me today not considering what the price was at some point in the past but rather what the price is today and where will it go in the future. Often you might consider pairwise choices; take the better choice given how much money you think you will make from choice A and choice B. If A is better pick A even if you own B and have an unrealized loss.

  10. Don’t look back after making a decision
    Accept your decisions and understand that you made the best possible decision that you made given the information that you had at the time. If you have regrets you’ll do worse. If you kick yourself then you won’t focus on what’s important.

  11. Always look to learn something
    Rather than checking your portfolio and the stock prices, focus on learning more about your companies. Learn more about the industry, the competitors. Learn more about a new industry or a different technology. Read the news…the unbiased kind. I have found that the more you know about many different things the better you will be at learning new, unrelated things and the better you will be at having a broad perspective to make better decisions.

  12. Be willing to help and teach others
    One of the best ways to learn and increase your own knowledge is to share and teach others. Let them question you and try to explain. If you have trouble explaining something then you probably don’t know it as well as you thought.

  13. Have an open mind
    Some of the things mentioned above will lead you to have an open mind.

There are probably a lot more that I can add but I’ll end it here.

Chris

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Here’s a few items I compiled from 2017, seems like a good time to share after Chris’s post.

Bullet points taken from the weekly ciovacco capital videos: http://www.ciovaccocapital.com/wordpress/

Common Missteps in Market Activity

  • Watching The Markets Too Closely
  • Watching Our Profit/Loss Too Closely
  • Checking Account Balances Hourly/Daily
  • Focusing on Forecasts
  • Watching Financial TV
  • Worrying About What Everyone Else Is Doing
  • Worrying About What Everyone Else Is Saying
  • Trying to Avoid Volatility
  • Always Being Fearful Of The Next Pullback
  • Always Being Fearful Of The Next Bear Market
  • Always Being Concerned About “If”
  • Always Being Concerned About “Could”
  • Short-Term Focus
  • Short-Term Fear

Volatility

  • Volatility is not the enemy
  • Volatility is a 100% normal and to be expected part of any bullish trend
  • Odds say 2018 will be more volatile than 2017
  • We should be mentally prepared for volatility
  • Trust the hard data for a disciplined approach
  • Take it day by day
  • Go with the flow

Reason to Sell: Evidence of a primary trend change, think of S&P 500 200 DMA. A particular data point helps validate a strategy but should not be the only critical deciding factor. Multiple draw downs will shake out market participants over a long term up trend. The calculus of evidence should derive a disciplined strategy.

Some Notable Quotes:

I think investment psychology is by far the most important element, followed by risk control, with the least important consideration being the question of where you buy and sell. – Tom Basso, Market Wizards
It’s not the mathematical skill that is critical to winning, it’s the discipline of being able to stick to the system. – Blair Hull, Market Wizards

Buying and holding sounds easy, but because of the drawdowns, with a plan it’s almost impossible. – Michael Batnick, Dir of Research, Ritholtz Wealth Management

Valuation, history shows, is an awful tool for market timing. Equity cycles persist, and selling just because price-earnings ratios are high has repeatedly proven a mistake. – Bloomberg 12/29/16
When a market makes a historic high, it is telling you something. No matter how many people tell you why the market shouldn’t be that high, or why nothing has changed, the mere fact that the price is at a new high tells you something has changed. – Larry Hite, Market Wizards

Big money is made over a long period of time!
“The big money was not in the individual fluctuations but in the main movements that is, not in the reading the tape but in sizing up the entire market and its trend.” - Jesse Livermore

Markets operate more on psychology than on fundamentals – Al Weiss, Market Wizards

Healthy quote - If pharmaceutical companies could develop a skinny pill, it would be the most successful drug in history. Well, I am here to tell you a skinny pill does exist, it just takes an hour a day to swallow it. Few have the discipline to swallow it every day.

Cheers!
Scott

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Chris,

I believe you are exactly right when you state that Saul’s success is because he posesses large portions of the 13 character qualities you have listed. Very perceptive observations, indeed.

Who we are, our temperament, and our willingness to keep on learning after decades of stock investing… These are some of the intangible qualities that separate the average investor from the truly exceptional one.

Thanks for sharing.

Still learning after all these years.

Jim

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All good, with the caveat that on #10 and in line with #11 it can be helpful to record why you bought and why you sold at the time, so you can learn from the decisions.

FC

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Wonderful post Chris. Thank you for sharing.

As I age (51), as an entrepreneur, a manager of people and resources, as an investor, and frankly as a citizen, I have grown to realize that your item number 11 is perhaps most important of all. Lately I’ve found myself working very hard to practice that skill and encourage my children, partners and employees to do the same.

SRV

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I would add two things:

  1. Cross-check your conclusions against sound counter-arguments.

  2. Have patience! There’s rarely a need to rush to pull the trigger. And if one train has left the station, another one will come along before long.

And maybe a third:

Have something worthwhile in mind for the money you hope to make.

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