When we master most crafts, we can often rely on immediate feedback loops to guide us and hone our skills over time.
Not closing your sales? Work on your pitch.
Not making your shots? Check your shooting form.
Not satisfied with your test results? Work on your weaker subjects.
For most crafts, we are able to measure the success of our efforts and capabilities based on the relatively quick results we are getting.
But not investing.
You can’t rely on Mr. Market to teach you investing.
Benjamin Graham once said that Mr. Market suffers from bipolar disorder. The stock market fluctuates between extreme overvaluation and undervaluation depending on whether he’s feeling optimistic or pessimistic.
From mid 2020 to late 2021, with the rise of meme stocks and the stock market going on a bull run, everyone felt like a genius. The positive feedback loop resulted in many thinking that investing is easy, that selling naked puts is free money and that we could accelerate our financial goals by buying in hot stocks.
In 2022, the market has been on a sharp drawdown regardless of the business quality or performance. To those who started investing in late 2021, the negative feedback loop may result in many thinking that investing is best left to professionals, and that they probably should stick to “safer” investments such as bonds.
When we invest in the stock market, we do not have the benefit of immediate feedback loops. It usually takes up to five years before you receive your feedback loop. In the short term, big returns earned may be a mirage and losses suffered may be temporary.
Instead, focus on refining our process constantly.
There’s no way to shorten or rush that feedback loop, as the saying goes “You can’t produce a baby in one month by getting nine women pregnant.” The next best alternative to hone your investing craft is by studying grandmasters with a great long-term track record and a repeatable process.
Here are three actionable tips to help you hone your craft as an investor.
#1: Study Warren Buffett’s letters, watch his AGMs, and analyze his past investments. No one has a longer track record or shares their investing wisdom and thesis more publicly and generously than he does.
Here are some resources to get you started:
- 17 Lessons From Warren Buffett’s Annual Letters To Shareholders
- Berkshire Hathaway AGM recordings
- Warren Buffett letters
#2: Always return to the first principles of value creation. Many investors seek formulas or rules of thumb for valuing a business. However, I find it always helps to understand what drives value for businesses by going back to first principles.
I have found three resources useful:
- Expectations Investing: Reading Stock Prices for Better Returns
- Valuation: Measuring and Managing the Value of Companies
- Aswath Damodaran valuation playlist
#3: Keep an investing journal and conduct a pre-mortem. Write down your investment thesis and, most importantly, why you think it could go wrong. Writing clarifies your thoughts, and if you don’t know the company well, it becomes abundantly clear. Not convinced? Try it!
Click here to read more on why you should keep an investment journal.
Investing lessons shouldn’t be determined by short-term feedback loops. In the short term, the market may be irrational, and the lessons you learn may be false positives. Instead, study investors who are grandmasters, think in first principles and keep a record of your investment decisions.
Admission Open: We have opened admission to our investing course for beginners. If you like to learn how to analyze and value a stock from start to finish, this course is for you! We are offering a $50 discount from now till 10 Jun, 9am. Once past that time, we will be raising the prices to at least $500.
