A friend of mine recently sent me a link to an excellent and candidly written article on the mistakes learnt over the past decade from stock market. Here's the link:
I have known Vishal from Altaisadvisors for a while although we haven’t been in contact for past 1 to 2 years. It was pleasant to go through his latest thoughts through this article. I can’t agree more with their thoughts although there are some points where I prefer to have a different take. Hence I thought to note it down in this blog.
I am writing this blog entry after a long long time. The purpose is to note down my current thoughts and to check their correctness a decade from now. Obviously, I shall be wrong on some of them and right on some. However, if you can tell right now that I am obviously wrong on certain points, then I would welcome to hear your thoughts in the comments section below. Infact, counter arguments are most welcome.
1. Selling good businesses too early: Totally agree with this.
2. Going down the Quality curve: This is so true.
3. Waiting for a little lower price to buy: I think it is too early to reach any conclusion on this point. We are in the bull market for high quality businesses (mostly mid-cap and small-cap businesses) since past 3-4 years wherein any business that has been successful in creating a perception of high quality (just perception is enough) has run up. I would reach a conclusion after the current investment style of high quality business goes out of favour.
5. Not experimenting enough in the portfolio: How can one disagree with this? One has to keep on experimenting on a small portion of the portfolio. I would only prefer to experiment when there is dis-interest in the stock market rather than when there is so much investor interest. In a bull market most of the stocks are likely to do well and hence one may reach wrong conclusions about the success of the new strategy under experimentation.
6. Having a very large cash allocation: I neither disagree nor agree with this. I prefer to wait for a complete market cycle (bear/bull market to next bear/bull market) to take a call on this point. However, I could be wrong in waiting for a complete cycle to reach a conclusion.
7. Holding on to the non-performers for too long: Can’t agree more with this. As soon as one realizes one’s mistake one should cut the losses and move on.
8. Thesis change, market view changes: Totally agree that one has to have an open mind about the developing thesis. I would only add that if one had not identified the new data points clearly before market recognizes it, then one can remain happy about the investment working out but not to note this case down as an investment success. Basically, if an investment works out for different reasons than the ones identified before the market recognizes it, then one has to be honest to not note it down as an investment success.
9. The need to be Contrarian: Totally true. Can’t add more.
10. Focusing on macro: Which follower of Munger and Buffet would dare to disagree with this?
Finally, I would want add one observation that is unrelated to above.
Today, the BSE mid-cap and small-cap indices have closed at an all time high (yet again). I am sure there shall come a time when the current favoured style of investing in high quality businesses becomes less popular (some other investing style or asset class may become more popular). At that time, the current high valuations of these mid-cap and small-cap businesses may come down. This does not mean that it is going to happen tomorrow. What I don't know is when is this going to happen. It may happen in next 5 months or 5 years. However, I have no doubt that it is going to eventually happen.
It is hard to find genuine investment ideas these days because I see several company's management have begun to speak what value investors like to hear. I wouldn't be surprised if in a few years a fraud is discovered in few of such businesses pretending to be of high quality.
Wish you a safe (investing) journey!
