Taking More Swings

This might fly in the face of all of the mantras of "waiting for the big salmon" but turning over more rocks and taking more (small) swings will keep the edge sharp.

One of my goals in 2024 is to swing at more pitches.

This runs counter to the school of thought in the investing world where one should sit still and wait for their fat pitch and then swing with all their might and capital. I worked to invest like this however, I am starting to wonder if the act has hindered my personal growth as an investor.

Like most self-taught, my education came from the material I chose to consume. It was the search for a simple answer, “Who is the best investor, and how did they do it?”

This led me into the world of Berkshire, Buffett, and Munger. Which, to someone who knew nothing, was like drinking from a firehose.

In the early years, I attempted to copy everything. I could parrot back their mantras and tried to integrate these staples into my investing process. For a beginner, this was probably the right path to follow.

But eventually, you have to leave the nest.

As we work towards mastery there comes a time when you shed away some of the training wheels to create a style that works for you. This means you begin to think for yourself.

Looking back, I think I kept a specific set of training wheels on for too long.

“You only need a few ideas a year”

My initial understanding of this principle was to go big on your “best” ideas and then do nothing. The issue with this is for someone in the early innings of their investing journey, this “do nothing” approach leads to a lack of stress testing and a neglected research habit.

Because of this, my “best” ideas came from a small pile.

For someone with decades of experience, a small pile is fine. But for someone who has less than 10 years under their belt, 5 of which I would say are “less” serious years, this can be detrimental to a learning curve.

You can’t make up for a lack of reps.

Our opportunity set is defined by the ideas we are familiar with, and within this list sits a circle of competence. For the beginner, the goal should be to get familiar with as many opportunities as possible and then work to define the circle of competence with deeper thought as time passes.

Writing this feels like swallowing glass but I used the “best” ideas mantra as a crutch for laziness and an excuse to stop looking for new ideas.

This is unacceptable.

A Newish Approach

The mantra still reigns true. One needs only a handful of good ideas over a lifetime to make an impactful difference. The part where I stumbled was defining the timeline in which you can place the label “good” on an idea.

In a recent interview, before he passed (Long live the 🐐), Charlie Munger gave an interesting answer to this kind of question posed by Ben at Acquired:

Ben: As you reflect back on one of these few great companies in a lifetime that you should bet big on, what advice would you have for David and I as young partners looking for a few of these in our lifetime? Things to look out for?

Charlie: You may find it five years after you bought it. These things may work into it or your own understanding may get better. But when you know you have an edge, you should bet heavily. When you know you're right. Most people don't teach that in business school. It's insane. Of course you got to bet heavily on your best bets.

I heard the last point loud and clear but I disregarded the first for many years and this dog has bitten me numerous times.

Had I been more patient with my ideas from the start, allowing the conviction to grow with incremental information. Then sizing my position into confirming evidence instead of lower prices, I would have fared better both financially and mentally.

This year I am permitting myself to take smaller bites if I like the idea and the “odds”.

The “tracking /research” position approach is one I used to roll my eyes at. I thought it was only for people who didn’t know what they were doing with no conviction. This is a naive stance one has when they don’t understand the full reality of how hard this game is and it gives no admission that there are many ways up the mountain.

It was an immature and closed-minded way of thinking.

My Definition of “More Active”

I recently disclosed that I’m starting a paid portion of the website where I will send out my best stock idea each month. For someone who thought having 1-2 good ideas a year was a productive year, putting out at least 6 ideas (I can re-up an idea only after 6 months) is a level of activity that runs in the face of my prior beliefs.

This is intentional.

By putting myself on the hook to come up with a respectable, well-researched, idea a month I will be sifting through plenty of names to come to the one I like the most at the given moment. It will force me to look at more ideas which will increase my pile of “familiarity”. I like to think of this as deliberate practice.

Each idea is not a pound on the table but a hand I find attractive that I want to play.

Time will tell as to whether my initial thesis is right and I hope that as more incremental information comes out, I will be able to adjust my position sizing accordingly.

I want to lean into my winners and let the losers die away.

By allowing myself a small budget to find new ideas I will hopefully, 1) stay away from touching the larger portions that are working, 2) give the positions that are still proving out time to work, 3) keep my edge sharp so when the environment is ripe with higher than average future returns, I am ready to go.

With any craft, there are a number of reps one needs to complete to reach a level of competency. It seems obvious to me that I have been lacking. This decision to look more will hopefully make up for some lost time.

Please be advised, Wall St Gunslinger is not an investment adviser and does not give personal investment advice. All content is for educational and entertainment purposes only and should not be interpreted as anything other than such. Investing entails a lot of risks and should be managed appropriately. Please do your own research and consult with an investment professional before making any investing decisions. Thank you.