Einstein used to say compound interest is the 8th wonder of the world, but he did not mention the road to this wonderful place is filled with crocodiles, mental challenges, ego destruction, and occasionally emotional breakdown.
No wonder Warren always says that investing is not that hard as long as one can keep their temperament intact.
Early November post
This post will probably be the most important post of 2017 as the 30-year-old Break’investor looks back from the future. It will cover 2 investment mistakes and the most important event of his 2-year investment journey.
So let’s start.
Over the past year I have learned a lot. I figure, at the age of 22 it is futile to think that my ability to beat the market is a high-probability event. Rather it is much better to devote time to learn as much as I can about my mistakes, about marvellous companies, about remarkable investors and to treat this experience as a steep learning curve.
Readers can however expect that if I ever manage equity investments on your behalf on a full-time basis in 5 to 10 years from now I better crush the market.
As such the Break’investor will treat any personal investment underperformance as tuition fees paying for his learning of great businesses and outstanding investors, so that the outcome will be that when he manages his own money and other people’ money on a full-time basis, the probability of repeating any of the mistakes he has made is minimized to nil.
So what are the 2 investment mistakes I mentioned?
Ignorance of growth prospect and management by taking excuse on sustainable competitive advantages, ie economic moats and that “ohh it’s fine, in the long run it will do well” at the expense of poor short to medium run.
Some of my investments lately have centred on companies lacking growth prospect and ran by poor to so-so management. This was done because I took an excuse that if I buy companies with economic moats at a cheap price, the investments will work out well over the long term. While it is likely that these enterprises will survive over a long period of time, I learned that it is not poor investment returns or losses that I will face with, but it is the opportunity costs of foregoing reasonably-priced growth-driven management-enabling companies there are in the market. This opportunity cost is so high that I am almost guaranteed to underperform over a medium term. And so I learned!
Buying into ideas I only feel errr about for diversification sake
I have learned that the best chance to achieve superior performance over the long run would be dependent on the concentration of my best-est ideas. Ideas that tick all the boxes for both short, medium and long-term superior performance. The superinvestors I followed concentrated their capital in ideas that are so rare they are happy to sit around for the next 5 years finding no other alternative for replacement. The work would be then to top up on existing ideas during any stock-price unfavourable movement and to continue trying to determine the competitive landscape of the existing holdings.
I also learned that whenever I consider a new holding, that holding should significantly raise the (economic) bar of the existing holdings. Otherwise it will only add to unnecessary idiosyncratic risks. In short, whatever in the portfolio should serve as the economic benchmark and my job is then to maximise this over time.
On the back of these, the Break’investor has done one thing right, and that is he learned to avoid losing money by concentrating ideas around companies protected by economic moats. Economic moat is the biggest lesson he learned in 2016, which set him on the right path to become a better investor than he was 2 years ago.
And so he learned!
All of these lessons, mistakes, and achievements to date will not have been there have I not had:
- The wonderful parents and the older brother who constantly support and believe 100% in what I do and;
- The wonderful group of friends and investors who provide much needed attention whenever I feel like rumbling on about stocks. (you know who you are <3)
As such the Break’investor couldn’t have asked for a better learning experience.
The most important event
The most important event that has ever happened to me in the last 2 years of investing has been meeting Mr L. Mr L is mentioned in my earlier post but let me do a quick intro about him here again.
Mr L, after years of studying medicine, switched his career to pursue long-term equity investing. He fought a long journey, studied intelligent investing on his own while working full time as a general practitioner, kept a personal track record of 10 years during which he underperformed in aggregate but outperformed when he was charted to the right path by his mentors, worked in one of the best funds in the UK and now run his own fund.
Meeting Mr L is transformational. He taught me the importance of paying close attention to industry growth and management, hence the mistakes I learned, and he taught me through his writing that constant learning is KEY. When I stop learning I will be drowned in my ego and will die a slow intellectual death.
Mr L’s achievements are inspirational:
- Mr L co-run the best world equity fund as ranked by Morningstar UK in 2014. The fund continues to be voted as the best long-only equity fund in 2016.
- Mr L opens his own fund where he has achieved consistent outperformance after 3 years and 1 month managing it…
…And wait for it, this is the best bit:
- Mr L received a personal mail from the man himself – Warren Buffett thanking him for suggestion of an outstanding enterprise that Berkshire Hathaway could have purchased. (My eyes weren’t dry when I saw that letter. It has THAT big of an impact on me)
I attached here the mail. I hope you will also find this inspirational!
After having read a dozen of Mr L’s partnership letters and emailing him back and forth, I sent Mr L a long email telling him how I thought of his achievements and his learning experience, and offered to work for him part-time with no pay. Working for him would be crucial, I would certainly feel like I “tap dance” to work every day.
So that’s it for November. I will post a round-up of my portfolio and the Viet portfolio at the end of December to conclude 2017.