About time

My mechanical portfolio experiment has got me thinking more about the dimension of time. Investing is basically a race, more of a marathon than a sprint, but a race nonetheless. Like all races, minimising the time taken to get from A to B is the thing that matters the most. If you didn’t care how long it took to generate returns, you would keep your money in a low risk savings account. We all understand this, but we often don’t pay so much attention to the time dimension in practice. Thinking about the time dimension more explicitly can help you to deal with a notoriously difficult part of investing strategy – how frequently and in what circumstances should you sell?

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Lessons from the mechanical portfolio

I questioned whether I should be running a more mechanical system back in January.  At the time I decided I wasn’t quite ready to hand over the controls to my portfolio just yet, but would set up a mechanical benchmark portfolio to track my performance against. It’s too early to reach any conclusions but the early signs for the mechanical portfolio are good – it’s been on quite a tear this year so far. Continue reading

Risk and diversification

Deciding how concentrated my portfolio should be is a question I’ve mulled over many times. I wrote about it in a previous post more than a year ago, where I decided that I would benefit from being more concentrated. Unfortunately, I think my reasoning then, while on the right lines, was a little half-baked. As a result, I still feel torn by the conflicting desires to either diversify into more of the attractive-looking opportunities on my watchlist, or to only concentrate on my very best ones. To build a more coherent approach I can confidently stick to, I think I need to go back to first principles.  Continue reading

A question of perspective

The ability to look at a complex problem from multiple perspectives is a skill useful in many different contexts, none more so than investing. Different perspectives often yield different insights, so if you can effectively combine multiple perspectives, in principle you should be able to materially improve your decision-making. Despite this, as I mentioned in my recent post on contrarianism, there is often a tendency for people to prefer to focus on what they see to be ‘the one true way’, rather than acknowledge the legitimacy of other perspectives.

In this post I talk about a perspective that is highly relevant to investing but often relatively neglected – the ‘external’ perspective of a business. Continue reading

Ignorance is bliss

Humans hate uncertainty. Uncertainty is stressful. Often it is even more stressful than a certain negative outcome. The reason we find uncertainty so stressful is so it prompts us to take action. When our ancestors weren’t sure if a predator was lurking nearby, the ones that got a bit stressed out by the idea and took steps to find out probably did better than those that blissfully carried on their business regardless. But like many other evolutionary instincts, the desire to reduce uncertainty can lead us astray when it comes to investing. Continue reading

Gripes corner

This week’s post is a bit of a rant I’m afraid! I’ve highlighted a handful of fairly common ideas in investing that have managed to get under my skin. They are common but don’t make much sense and I feel compelled to debunk them. Some you could put down to differences in perspective I suppose, but some are just downright wrong. Continue reading

‘We are all contrarians’

This week I came across an article referencing the recent Shareholder Letter of Longleaf, a value investing fund. This letter contains a familiar treatise on value investing vs growth investing and I wouldn’t say was particularly notable. However, I was struck by a couple of things in this letter. There is a strong emphasis on how value investing is contrarian and unpopular. There is nothing unusual about this view, but unlike other times I have seen it expressed, quality investing was characterised as the ‘popular view’, against which value investing was contrasted. As a self-described quality investor and contrarian, this made me sit up a bit and question: ‘who’s the real contrarian here?’ Continue reading