How To Be A Good Investor (Part 1: Emotions and Ignorance)
How To Be A Good Investor (Part 1: Emotions and Ignorance)
The four horsemen, real ignorance, lawn chairs on the field, and a foot in your ass.
Not investment advice.
A little extra
Thank you to everyone that signed up yesterday. It means a lot to me, and I take your attention very seriously. Before we get started, one thing.
This tweet was a kind of test to see who would answer “What I’m doing right now” The life we want is usually extremely close to what we have right now. Just needs tweaking.
Ok let’s get into it.
How to be a good investor
I. The Four Horsemen
Being a good investor is in reach of anyone. I firmly believe that. The problem is that we stray further from what is real when our emotions enter the mix. Now emotions aren’t bad, but in investing they can lead us astray very quickly. “The four horsemen of investing are greed, hope, fear, and ignorance” (Jim OShaughnessy said that.) Let’s explore these. Ignorance is easy: you just learn all the time. Greed, hope, and fear? Not so much. They seep in like a quiet sickness when we least expect it. Even the greats have been struck in their prime by these maladies. I treat them as one because they are the three sides of a ‘three-sided coin’ (don’t think about it too much, just roll with me here).
I don’t want to be too quick and slap a band-aid on all of our human biases, because it’s like slapping a bandaid on a perfectly good machine that isn’t broken, just out of place and misunderstood. Instead, I am looking to continually understand myself and root out all (or as much as possible) falsehoods. The best way I know how is to meditate. By letting all those emotions come to the surface, breathe, and then ultimately become useless in our endeavor of investing. Having emotions, strong emotions even is ok in investing. But acting on those emotions is not. Some will say that’s crazy, but I do not think so.
Now, understanding the emotions of others is a ticket. The entire market, with all its connectedness to so many humans and their emotions all over the world, it would be stupid to not take into account, and even play on, those emotions. Greed, fear, hope, and ignorance are everywhere. You can count on them. Another I would personally add is impatience (which stems from greed). People want things to happen this month, this week, right now. They do not understand the tool that is time. The buy-and-hold investor wins here because they are patient.
II. The Real Ignorance
Ignorance will kill you if you let it run absent long enough.
Do not confuse ratios, analysis, charts, and details for knowing how a business works and how it fits in the world. Learn how humans work, and the things they want.
A big hint: humans have been wanting the same thing for much longer than the market has existed. Humans want sex, entertainment, power, status, and money. These can be further boiled down to just sex, but that’s for another day. A few humans want meaningful work and meaningful relationships, but the ratio is so small that it is inconsequential in our domain, the public equities market.
If humans have been wanting the same thing for so long, how have so many missed the mark in investing?
Answer: Logic. “This power company is making fuel cells cheaper and better than anyone else in the industry! It’s a no-brainer!” How many of you us want fuel cells? I don’t. You don’t. And nobody we actually know doesn’t. It doesn’t help me get a mate in any direct or indirect way.
What about access to life-saving technology that can extend the quality of life and life expectancy by a considerable factor?
Answer: NOW you’re talking! Living better and longer means more living which means more power which means more sex.
We operate on incentives and skin-in-the-game.
III. Swing, ya bum!
The baseball-investing analogy is poorly used. “Wait for the fat pitches,” they say.
Screw that. I’m waiting for the pitcher to get so tired he has to start throwing them underhand. I’m bringing my lawn chair and a good book to the plate.
I’m relatively new to this investing thing, but it seems so obvious to me that only a few good hits are needed, so why not wait for the best pitches? One or two a year maybe.
The crowd will scream for us to ‘swing, you bum!’ but we don’t care. The crowd, of course, is our emotions. They do not help us play the game any better, but it’s sure fun to have them along for the ride.
It’s easy to talk about emotions and how we shouldn’t let them play our game, but it’s another thing to see red for the 4th year in a row and wonder if your kids future is at stake.
If you’re smart you’ll emotionally prepare for that potential reality.
Live BIG, dangit!
The time you spent reading this email cannot be regained. I hope you use these few tidbits to the maximum benefit.
Go do something risky. GO!!
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