So, as a prelude to our review for the 2nd financial year, I thought that I would post some thoughts about what I’ve learnt while investing for the past 4 years.
Due to professional commitments, I will only be updating this blog semi-annually.
#1: Focus and Grind
One of the main reasons why I became competent in investing was focus. Finance is exciting; there is nothing quite like it in the world: It never stops, there is always something new happening, and providing that it is done right, it can be immensely profitable. Nothing gets people more excited than the idea of getting rich, and there are an abundance of people willing to sell you the latest system to help get you there.
When I started out, I was extremely suspicious of all trading strategies. But with time, I have come to change my stance on it.
You can make money investing in almost ANYTHING. That’s the truth. There are people who make plenty of money trading commodities (Jim Rogers), using a global macro strategy (George Soros), or in real estate (Donald Trump).
The point is whether YOU can do it. The 80-20 principle holds true in any field of investment that I can think of. If there is a market, someone is making money.
The question is not whether they can make money, but whether YOU can.
Everyone I know who has made significant sums of money investing in shares as a common trait is extremely FOCUSED on one field of investment. People who are great in forex stay within forex, people who are great in real estate stay within real estate, and people who are great in investing in businesses stay within that area. It’s only when they venture out of their competence that they get burnt.
Malcom Gladwell repeatedly talks about the “10,000 Hour Rule” necessary to become the top in one’s field. Think about it for a moment: if you tried 10 different investing strategies over the course of 5 years, how good would you be compared to the guy who honed in on his skill of investing in businesses by reading a thousand annual reports?
Admittedly, it’s much easier to talk about starting a bunch of different new things compared to actually honing in on our skills day in, day out. It’s exciting to talk about the potential rewards, to get hyped up about the changes and impact that it’s going to have on our life… but reality slowly sets in after we realize it’s much harder than we thought, and we soon move on to the next project.
This cycle repeats itself, and soon we find ourselves becoming a jack of all trades yet the master of none.
Grinding isn’t glorious or exciting to talk about over the dinner table, but it is a necessary trait that all famous people have. Every leader in their field is famous for one thing to which they dedicate their life and passion to – Steve Jobs, Michael Jordan, Bill Gates, Henry Ford, and Rockefeller. The greats are great because they became great in their field, and the only way to become great in investing is to focus and grind relentlessly in one specific field.
#2 Nothing Worth Having is Free…
…and this is especially true for anyone who is trying to dominate their field.
There isn’t a shortage of free information – it’s available everywhere. Like your average Asian, I’m out for a good deal just like everyone else. But I can say with conviction that the last place you will ever want to save costs is on your education to becoming a competent investor.
The average person will spend tens of thousands of dollars on a college degree, spend endless hours of their time studying and building up a spotless CV to get a great job, yet when it’s time to spend a couple of dollars to buy books, or go to meaningful conferences (not seminars that are out to grab as much money from you as possible), they suddenly extol the virtues of saving money and their lack of time.
If you treat investing like a hobby, you are going to get the same results. The people you are up against include:
1) Professional Fund Managers are some of the best paid individuals in the world who do this FULL-TIME for a living, and they still have a notoriously hard time beating the market.
2) Investors like Warren Buffett, David Einhorn or Seth Klarman have spent decades perfecting their art.
3) Investors who live and breathe the market, and love to do this day in, day out.
The odds are stacked astronomically against you, and the last thing you want to do is to make them worse. In order to become great at anything, we all have to pay our tuition fees one way or the other – be it in time or money. While it is possible to learn from your mistakes, why not learn from the mistakes of other people? There is a sheer treasure trove of information for value investors out there.
If you decide that this is not for you, fair enough. Buy a market index fund and rest easy at night. But if you want to become the best in this field, make sure you realize the commitment you need to make to dominate it.
#3 Build a Great Supportive Network
This is my favorite way of short-circuiting my learning process in any field.
A great network is primarily divided into three groups of people:
Mentors: While theory and personal experience is essential, I learnt the most by sharing my own mistakes and successes with my mentors to see what can be tweaked. There is always room for improvement.
I have had the privilege of meeting an incredible group of people willing to share their own experiences with me.
I truly believe that most people want to help others succeed. We are innately programmed to do so. They might not always have the time, or be in the right place to help you, but you have to be persistent, and you have to keep looking. The moment you start looking, I guarantee you that you will find people who will take your game to the next level.
Peers: People who are on the same journey can be a great sounding board for ideas and informal sharing. I was very lucky to meet an incredible group of people heading in the same direction that I was, and I have learned a great deal from every one of them.
Even if you can learn just one thing from someone, that to me is a great relationship. People talk to me all the time about different companies, and I have learnt about industries or businesses that I wouldn’t have considered previously, or viewpoints that I would never have considered.
As Steve Jobs said, the dots only connect when we look backwards. Some of my best investment ideas have been the result of a dozen different experiences and interactions combined, and it’s quite amazing to see how it all comes together at the end.
Friends and Family who Believe in You:
This is the most important group. Getting great in any field requires a lot of dedication and persistence, and you are going to fail a lot to get there.
Having a great group of people around you who believes in you when you struggle to and who can help you return from any setbacks you may need to overcome.
You can’t get to the finishing point on your own, and the people you hang around with the most – your close friends and family – are, I feel, so important in helping you stay on track.
My thoughts on building relationships:
According to Buffett, Graham said that he wished to do something foolish, something creative, and something generous every day. The last part had a huge impact on Buffett as it did on me.
The fact that a man of Graham’s ability shared his knowledge so freely astounds me to this day.
A mentor I had once taught me, relationships aren’t about taking, taking and taking. It’s about giving without the need for anything back. People are naturally helpful and want to help you if they can.
So every day, I try my best to be helpful to someone else, even if it’s in a small way. People appreciate the small things as do I. This I believe is the key to great relationships and it ensures that both parties grow as individuals.
Each of us has our own talents and strengths, and thus something of value to offer to everyone. So if you want to build up a great network of people, always remember to give before asking.
This has been an especially long post, and I have tried to keep it as relevant to someone starting out as possible. There are a few great resources that I recommend as I feel that they will help anyone build a solid foundation if you want to get a good grasp of fundamental analysis and value investing:
The Intelligent Investor – Benjamin Graham
Warren Buffett Biographies (Both Versions)
Berkshire Hathaway Annual Shareholder Letters
Finally, I want to give a special mention to the Manual of Ideas, which is run by two extremely talented individuals – Oliver & John Mihaljevic.
I believe that they have done something quite remarkable in bringing top notch information to the masses. Imitation is the finest form of flattery, and in profiling top investor holdings (with write ups), I have learnt far quicker by understanding how the best in our field think about an investment.
The many Value Conferences (also by them) have also been a joy to participate in, and I was lucky enough to be a participant in the first one ever organized. Howard Marks, an investor who I have nothing but the utmost respect for, is a frequent speaker at it.