Note #1: Ability to buy stocks while others are panicking and sell stocks while others are euphoric
Buy low and sell high. But most people do the opposite as they base their decisions on emotions and fear of missing out.
Note #2: Be obsessive about playing the game
One either have too much money or too much time. Rarely do you have a lot of both. And unless your job is being a fund manager where your time is to invest money, the majority of us are stuck in one of the two.
But if you are obsessed about something, like your job, hobby, toy or whatever, at least you have put in the time to know the ins and outs of it all. Just expand on it a little to find investments related to it.
So rather than trying to study every stock I come across, like I used to when I had lots of time and no money, I’ve focused betting on areas I am obsessed and confident in.
Note #3: willingness to learn from past mistakes.
Note this:
1. Don’t over-analyze our past mistakes
2. Be less harsh on ourself
The truth is that you are going to make mistakes no matter what.
The better rule is to make sure you don’t make the same mistake rather than trying to learn everything from your mistakes and paralyzing yourself.
Note #4: inherent sense of risk based on common sense.
Don’t blindly trust what media, computers, spreadsheets tell you, Use your common sense
Diversify to reduce risk if you have to. Don’t put 100% of your money on a coin flip investment. If something looks too good to be true, it probably is.
Note #5: Great investors have confidence in their own convictions and stick with them, even when facing criticism
I don’t care whether I’m wrong. The goal is to profit and build wealth. If I’m right along the way, awesome. But I don’t need to be 100% correct. Even if I have a low hit rate, with proper allocations, it will yield excellent returns.
If you invest in 10 companies where 9 of them are duds which you sell quickly, but you have one huge winner, your hit rate is 10%, yet your investment returns will be thanking you.
Don’t be afraid to call it a loss and move on to the next idea. See above notes #1 and #3.
Note #6: have both sides of your brain working
“As an investor, you need to perform calculations and have a logical investment thesis. This is your left brain working. But you also need to be able to do things such as judging a management team from subtle cues they give off. You need to be able to step back and take a big picture view of certain situations rather than analyzing them to death.”
Every valuation and assumption must include a story. Outside of buying cigar butts, there has to be an underlying thesis to match the valuation.
• Think sales are going to go down as a patent is expiring and competitors will dilute the marketplace? Short the patent holder or buy the competitors.
• Believe electric and self-driving cars will ruin insurance companies? Short insurance or buy car manufacturers.
• Read that the city that claims Amazon’s 2nd HQ will pump huge amounts of money into building infrastructure? Buy Amazon or municipal bonds.
Discover the story that you think will unfold. Sometimes I’ll get a comment about investing or updating my thesis with anecdotal evidence, but if you’ve got extensive experience in a certain field, this anecdotal evidence is the difference maker.
Most Important Note #7: The ability to live through volatility without changing your investment thought process.
Sellers is talking about not giving up on your process because the market takes a dive or handling volatility. Zoom out and look at the big picture.
The Great Depression or the market slide years back, I don’t know how people would have handled that type of treacherous market that wiped out most investors. Likely, most would have kept averaging down, down…. all the way to nothing.
But in the end, the market recovered and the rest is history. The market has always come back.
Don’t panic & maintain the integrity & intelligence.
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