To The Moon

As investors, we sometimes find ourselves trapped by our own bias. This can also be known as “buyer bias” where our objectivity is misplaced for the businesses we have invested in or bought.

We can find ourselves gravitating towards investors who own the same holdings, and perspectives. In no time, we could find ourselves in an echo chamber. In this echo chamber, our conviction about the business continues to be reinforced through the repetition of similar views, understanding and ideas.

This is how Google defines an echo chamber:

Definition of Echo Chamber from Google/Oxford

There may come to a stage where we may push away anything contrary to our beliefs. In fact, some of the pushback can be emotionally charged. At the same time, we may have quietly silenced or filtered any opposing view. Such investors are so convinced by the vision of the business that they identify themselves as part of the brand. It is not wrong so long we can main objectivity.

How can we steer away from such bias?

The assumption that “we can be wrong” is a great place to start. When we understand that we do not have complete information about the reasons leading to price changes, it can be really liberating. When we know that we could be wrong, it is easier for us to take in more information to consolidate our understanding, leading to objectivity.

My research (though flawed and incomplete) has given me confidence. The disconnect between price & value can present a great opportunity but thecurrentmacro market has led me to stay off new positions. Each earning report is a time for review. I do not believe that the businesses have a competitive advantage that last forever.

Bespokepremium list of top S&P500 companies in Sep 2001 & Sep 2021. Look at the change in list of companies.

Just look at the list of biggest S&P500 companies between Sep 2001 and Sep 2021. Out of this list, only 7 companies remain in this same list after 20 years. Success today is no guarantee for success in the future. Let us do our due diligence before we invest and continually.

“No empire lasts forever. No competitive advantage is permanent. Genghis Khan, the Roman Empire, the Byzantine Empire. Kingdoms rise & kingdoms fall.” - my investing muse

Listen to all sides, bulls and bears alike. Consider all sides of the story. In some cases, I was drawn in by the bulls but it was the bears who convinced me that some of these businesses are excellent.

“I tend to stay away from price targets & time frames. But a mix of bulls & bears with more Beatles in between can be therapeutic. Sometimes, we can do ourselves a favour by not listening to the news or social media. Let it be”. - my investing muse

We do not need to check the news or stock charts constantly. We should come to a stage where we do not need to check the stock charts every other hour. We do not need to check the trees daily to see if the forest is growing. One of nature’s wonders is the compounding power of time. After we have done our research, understanding that there is always a disconnect between price and value of a business can be liberating.

The most important return of investing is time, and not just money. Thus, we should not be spending excessive time on investing. There is more to this life than just candles, indicators and charts. I invest so that I can gain time for the people and things that I love.

My final thoughts

For me, stocks are just vehicles for wealth accumulation. I “hope” not to have too many emotions attached as these will cloud our objectivity. Losing sleep for investment is not a good trade-off. Understanding that we do not all the information meant that we could be wrong. It is not about a lack of confidence but rather a realistic point of view. Price is the result of demand and supply. With the supply of stocks largely the same, price mostly reflect the demand for the stock. We buy stocks for one reason but could sell for a million reasons. Thus, it is not needful to monitor on a daily basis. There could be some geopolitical events that can shake the entire market (eg the trade war between USA & China) but for the rest, the volatility may not be long lived.

Given the current macro, it is best for us to remain prudent. Let us spend within our means, do not leverage and research before we invest. Looking forward to a great year in 2023.

@TigerStars