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  • Writer's pictureGreystone Capital

What I think I’ve learned about investing

Inspired by Upslope Capital’s George Lividas (@Noonsixcap) updates regarding his lessons and learnings shared via Twitter – ‘What I think I know about investing,’ I wanted to write my own take of short blurbs relating to what I’ve learned over the past few years as an investor and portfolio manager. I hope to update this list periodically, and as the list grows, I will separate topics into sections – Valuation, Portfolio Management, Idea Generation etc.

  1. A suitable portfolio feels like 8-12 positions, with the top 4-5 making up the majority of assets

  2. 25% of the portfolio for one position is near my limit in terms of sizing. I’ve gone as high as 50%, but this is incredibly uncomfortable and tends to be a poor return on brain damage

  3. I find it’s OK to enter into a position after a few days/weeks of due diligence. After that, make your DD a full time job. Once a position is fully built, you better know the business inside and out

  4. Constantly re-evaluate the position, management, capital allocation, and value as measured against your initial valuation – always answer when and why would you sell, hold, buy more?

  5. If you feel like calling another shareholder to discuss the business – i.e. get validation for your idea – need to reevaluate your decision and investment process

  6. Confidence and arrogance go hand in hand. It’s difficult to separate the two. Both are needed, both can get you into trouble. Balance these out with humility and willingness to admit mistakes. This is where focusing on the decision making process and not outcome or results becomes key

  7. Have a short write up to share with friends, colleagues, investors and on various forums – have a longer write up for yourself and clients/partners

  8. If I find myself trying to grapple with understanding a business – have to move on

  9. With that said, there have been investments where the longer I’ve followed the company, the better I’ve understood the key drivers of revenues, ROIC and growth

  10. In line with knowing yourself as an investor, adaptability, flexibility and being dispassionate are key

  11. Work hard to be dispassionate about the purchase price (sell when things change etc.), dispassionate about being ‘right or wrong’ and dispassionate about trying to understand and value everything – there is an opportunity cost to everything

  12. Generally, for me, insurance, financials, REITs and semiconductor business are outside of my circle

  13. Margin of safety in the purchase price is paramount, however paying up for quality isn’t a sin. Management, balance sheets, long runways, high ROIC, cash flow generation – these things all matter

  14. Valuation is much more art than science. I’m never right, even when an investment is successful. Intrinsic value is usually a range as opposed to specific numbers

  15. Three things I try to practice consistently – sourcing quality ideas, valuing those ideas, learning how to size the positions appropriately

  16. Don’t get hung up on original ideas. I find it much more valuable to talk to other investors, read write-ups and analysis, and study fund managers – screens and quantitative measures only take you so far and often ignore what financial statements can’t pick up on

  17. Talking to management is never a waste of time, and never detrimental to an investor

  18. For technical businesses – site visits are a must. Go see how the business operates

  19. Sell discipline is important, but almost never feels good. So many psychological things at play. Endowment effect etc, confirmation bias, I did too much work to sell the company

  20. Leverage kills. Refinancing is never clean and never guaranteed

  21. Have to be able to explain the company/investment to a small child so that they can understand exactly what you’re talking about. Have a 20-30 page write up for yourself/clients – apply the Feynman technique

  22. Losing money hurts. Badly. It’s confirmation you were wrong, even if just temporarily. So important to keep a decision journal and rub your nose in the mistakes – avoid survivorship bias

  23. So many false positives in investing. They are everywhere. Can make a great decision, and have a bad outcome. Similarly, you can make a stupid decision, and end up doing well. Keep a decision journal and focus on your process, not the results. When part of you doesn’t know whether a positive result was based on luck or skill, you may be headed down the right path

  24. Cheapness isn’t good enough. My god is there a difference between cheap and a bargain. The old value trap phrase. Have to always focus on what will prevent you from seeing future cash flows (industry decline, poor management, product cycles, cash burn). If that thing is easily identifiable, DON’T just invest because a business looks cheap

  25. To the above point, spend a ton of time trying to identify why the current price level is a bargain. Why does the opportunity even exist?

  26. A long thesis when inverted is a short thesis on the remaining alternatives. For example, if you’re long traditional cable companies, you are on some level betting against the streaming services of the world, and vice versa

  27. The market is smarter than you are. Always. No matter what. Always.

  28. Healthcare services can be god awful investments. Regulation surrounding insurance and billing practices is enough to exclude me from the sector completely. Also I’d add to that list most commodity businesses. Need a few very strict criteria and favorable supply/demand trends for them to be successful investments

  29. Feeling good and making money often don’t go hand in hand – I’ve questioned weekly, monthly, yearly some of the best investments I’ve made. The greats weren’t kidding when they talked about having a tolerance for pain in this business

  30. Simple, but not easy. The main investment principles, maybe 20-30 or so, can be learned by a lot of people. The behavioral, psychological, and emotional aspects can not. In some ways, they relate to upbringing, biochemistry, experiences, age, time frame etc. What is, on the surface, easy to learn, is incredibly difficult to put into practice over long periods of time

  31. It’s more important to dig deeper into the realm of your understanding than go wider in terms of studying a new industry or business

I’ll finish with an interesting point made from a piece on deferred income by the Private Investment Brief, one of the best sources of information and thoughts on investing I know (it’s a paid service, but the essays and free content are phenomenal):

…I sometimes think investors spend too much time increasing the breadth of their understanding – “today, I’ll learn about the oil industry, tomorrow I’ll learn about the banking industry, the next day I’ll learn about China etc., and then when I put together a PPT presentation describing my fund, it will say ‘extensive experience investing in oil, banking and China” – and not enough increasing the depth of their understanding, especially of these fundamental concepts upon which everything else depends. I’ve yet to see anyone advertise how much time they spent figuring out the purpose of a liability from the perspective of an equity investor, or that they came up with this thing called cash-time continuum. But I think it’s worth doing nonetheless. One of the paradoxes of brainwork is that if you want to go wide, the best thing to do is often go deep. 

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