Today’s post is a hodgepodge of various ideas I have been thinking about over the last two months. Funnily enough, I have been writing more than ever – but most of the material isn’t investing-related – hence the long break between Capital Buddha posts for 2022. Apologies, but I can assure you I have a long list of pieces I’m writing about.
Dan McMurtrie – On Resilience, Recovery, and Longevity in Investing
This podcast is particularly great. It covers topics like investor burnout and the effect of stress on investing. These are particularly important topics because the main ingredient of investing success is to play a long game. And the only way to play a long game is to stay alive for a long time. And staying alive involves incorporating sustainability into your strategy.
The main takeaway I got from it was to see how I handle downturns in my life. Can I get decent meals, sleep and exercise in even when I’m feeling like crap emotionally? And do I have a system to cool down and breathe when things get tough? Or do I just try and power through, increasing the possibility of an eventual burnout?
Of course, all this content goes much broader than fund management, so it’s a great listen for anyone interested in business or investing.
Simplicity/Finding the Right Game
I had a revelation when talking to a successful investor who has owned Microsoft for a long time. In addition to owning since 2009, he added to the position around the time Satya Nadella’s cloud-focused turnaround started to take shape. Two laser-sharp moves, in hindsight.
I was extolling the virtues of semiconductor stocks to him, and how they present a massive opportunity. He stayed quiet at first, then at some point replied, “You might be right, but I’m happy with Microsoft anyway.”
In context, those were powerful words, because he had not only survived for many years as an investor, but also because he chose to keep it very simple. I was reminded of Allan Mecham, an investor who famously built a leveraged Berkshire Hathaway position around 2012 – when fears of a European crisis depressed stock market prices.
Mecham could have pulled off a dozen hero moves. He certainly had the intellect to be able to do so. But he chose probably the most low-risk way of getting above average returns. Of course, I wouldn’t recommend huge, levered bets in general. But if you know what you’re doing, this can be simple and effective.
In stark contrast to both above points, I met several people in the last 6 months whose life goal is to achieve 30% annualized returns for the foreseeable future. They are powered by various things which I am not. Some of them have a competitive drive to win. Some have a persistent feeling of inadequacy which doesn’t go away even when they are already rich – which means they must keep winning to prove their worth. Some simply have a high level of curiosity, and a genuine love for the investing game. Some get motivated by making money for charities and university endowments on their client roster. But if I’m being very honest (and a lot of these people are my friends) – we all don’t know exactly why we’re playing this game.
Both anecdotes made me realize that my personal game is not to look smart – nor is it to get 30% returns over long periods (though that would certainly be nice!). It’s instead to find out what my personal financial goal is and get there with the path of least resistance – and lowest risk possible.
The best example of simplicity vs. looking like a hero is the difference in stock picks I make for my own portfolio vs. my wife’s. Her portfolio has smashed my portfolio’s performance. All it has in it is my very highest conviction ideas, bought at cheaper prices. My portfolio up until now has contained a long tail of a mix of FOMO and ‘trying-to-look-smart’ ideas. So, since apparently, I can’t get rid of FOMO entirely, I have decided to cap my FOMO and trying-to-look-smart ideas at a small % of the overall portfolio. This way I still get to ride all the great picks my friends have shown me, while playing it safe with the bulk of it.
Finance plays a role in my life. But it’s probably one of many factors that contribute to a good life – rather than being the focal point. Preserving the real value of my capital ranks higher than heroic returns for me – though the two aren’t necessarily mutually exclusive. Building relationships and being able to help others is also a drive to continue collecting ideas and learning.
Survival
I was surprised to see that Aravt Global, run by Yen Liow has shut down. Fund management is a tough business. It’s hard to get a fund off the ground. It’s hard to get the first $50-$100million of assets which make it financially viable. And it’s even harder to achieve persistent great performance.
It just goes to show that even very smart people get taken out. And the graveyard of funds is way larger than the tiny pool of funds that have survived. And those who had a rough 2021 after a euphoric 2020 might be more aware of this reality now than when unproven, unprofitable company valuations were soaring to the stratosphere.
This has implications for every type of person, profession, or investor. Survival is hard. And success often goes to those who survive and are lucky, rather than necessarily even the most capable or hard-working people.
Sitting in Europe, the war in Ukraine highlights this even more. It’s not clear whether Putin and friends, in a flash of testosterone and emotion, decide to press the nuclear button and put an end to decades or centuries of progress. Millions of people could be wiped out. But some will survive. And those survivors wouldn’t necessarily be more capable than those who got wiped out. But they would be luckier.
How this translates to investing is that it’s probably just a good to have the luck to survive a long time. Habits, thoughts, and actions specifically about investing probably contribute to a smaller portion of success than we all realize.
Now this isn’t a very hopeful message. But the aim is not to discourage – but instead to humble the reader. Focus on what you can control. And don’t let success, nor failure get to your head.
Regret Minimization
When you spend money, there’s a trade-off between your today self, and tomorrow self. Anything you spend today is resource that your tomorrow self, for example in old age, can’t rely on.
I had a discussion with a young entrepreneur friend about whether it would be good to spend some money partying in Latin America, instead of saving and putting it into an index fund. He technically didn’t need to party in Latin America. He would have probably found a use for these stored savings later.
But if he knew it was important to party at a young age, and he repressed that, could it also have been damaging for his future self? If he felt that he didn’t scratch the party itch enough as a youngster, and instead tried to do it when he was 50, would he have gotten divorced? Or bought a Ferrari, not because he loved cars, but because he had to gain recognition from the rest of the world to subdue his own feeling of an unfulfilled life?
Sometimes investments in the here and now can be the best financial decisions as well as life decisions. Sometimes they aren’t. It depends on who you are – and what you feel strongly for in life.
You really put the Buddha in this post. Love it. Great read