The Focused Investor’s Golden Rules
Looking back into my 5 years of value investing journey, I’ve changed. I steered away from seemingly cheap companies and moved towards paying for high-quality companies. This shift resulted in huge growth in my investment results. Not just my knowledge of understanding financial statements. I put in effort to create a framework or philosophy that guides all of my investment decisions. It is something useful to fall back.
There were many painful moments such as losing over $400k, forgoing opportunities to grow my wealth as much as $250k, and not sizing my portfolio towards companies with highest compounding potential. While I hated to have those lessons, it forced me to reflect really hard. For that, I am grateful.
A lot of us underestimate the powers of reflection, so we skip this important process. But doing reflection is like rewinding the tapes. It allows us to see what were the emotions and motivations to buy or sell any companies. By doing that repeatedly, I learned more about my investment shortcomings and I fixed it. One of the most dangerous of all, is my impatience. I guess that is the beauty of investment is where no one is actually better than anyone else, but we continue to support each other in our journey. Mistakes will still happen. BUT… you should not make the same mistake twice.
Through a network of investors, I’ve gained different insights and methods of doing research faster. Lately, I became across this book called The Essential Buffett: TImeless Principles for the New Economy. I prefer to keep things simple and Mr. Robert Hagstrom encapsulated my approach in these 5 simple golden rules. I highly recommend readers to think hard about these 5 points because it could be life-changing.
- Concentrate your investments in outstanding companies run by strong management.
- Limit yourself to the number of companies you can truly understand. Ten is a good number; more than 20 is asking for trouble.
- Pick the very best of your good companies, and put the bulk of your investment there.
- Think long term – 5 to 10 years, minimum.
- Volatility happens. Carry on.
I stopped spending time looking at stock prices. Thinking back, it was really a stupid thing to do. I tend to spend more time reading and trying to find better companies to “compete” with my existing portfolio. I have more time to exercise and broaden my skill sets in other non-investment field.
Why bother to analyse so many companies? Focus on the best and discard the rest. Fun fact, out of all the listing companies in Hong Kong, nearly 40-50% are not profitable. From the remaining, 20% is worth investigating. The same pattern applies to Singapore. I am not sure about other stock exchanges.
Another key sharing is to always sharpen your axe. Do not focus on doing, but focus on finding ways to do your research more effectively and efficiently. This involves knowing where to find the information quickly, and to make sense of the information. Have a process or a check-list would be helpful.
3 Responses
Hi Kelvin, I love what you mentioned below…
“I stopped spending time looking at stock prices. Thinking back, it was really a stupid thing to do. I tend to spend more time reading and trying to find better companies to “compete” with my existing portfolio. I have more time to exercise and broaden my skill sets in other non-investment field.”
This sentence has reminded me not to spend time looking at stock prices. 😀
Thanks, as always! Thanks for taking the time to read my content.
Hi Kelvin, thank you for the valuable pointers. I like the part on ‘ Another key sharing is to always sharpen your axe. Do not focus on doing, but focus on finding ways to do your research more effectively and efficiently.’ Could you elaborate further on how to do our research effectively and efficiently. Where can we find reliable information on the company besides its annual reports. Thank you.
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