Investing can be demanding. It can require some serious brain power… but more importantly, it’s a battle within yourself. It doesn’t matter how smart you are if you’re too emotional or too biased to use that brain optimally. When circumstances change or when events don’t track your investment thesis, do you change your view? Or do you twist the facts to avoid admitting a mistake?
I’ve read a lot of books about investing psychology; none of them capture the ideal investing mental state as vividly as my beer-league hockey team.
Most of the hockey players I play with, including myself, have played for a long time; almost all of us were pretty good at one point but are having difficulty coming to terms with the fact that we’re not as good as we once were. When we fail to perform in line with our historical expectations of ourselves, we rationalize poor performance with excuses and a distorted interpretation of the facts. By avoiding painful truths, we fail to improve.
But there is a small group of hockey players who are new to the game, only starting to skate in their twenties or thirties, who have the ideal attitude — these beginners are just excited to learn and become better every day. They are open-minded and eager for feedback about what they did wrong last shift on the ice and what they could do better. They are unbiased in their thinking and have no expectations or mental baggage (what Buddhists call “the Beginner’s Mind”).
My New Year’s resolution is to be more like these beginners. My biggest investment losses haven’t come from picking the wrong stock in the portfolio but from holding losers long after evidence mounts discrediting my initial investment case.
Within our investment process, each stock in the portfolio has an investment thesis — expectations about how the business should perform and guideposts about what success and failure look like. Sometimes investors can get too attached to their holdings, becoming biased when interpreting data points about how an underlying business is progressing… protecting their egos at the expense of long-term portfolio returns. Our investment theses help us to avoid that pitfall, but even so… no one’s perfect.
When I think about the optimal way to manage our portfolio, a Beginner’s Mind is a textbook attitude. Seeking out data points that contradict our investment thesis — information that suggests we might be off track — leads to minimizing damage when we’re wrong. Beginners seek this information out enthusiastically, just looking to improve.
In 2024, I hope to be a little bit more like these beginners.
IMPORTANT DISCLOSURES
The views and opinions expressed by individuals are their own and not the views or opinions of their employer. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. No discussion or information contained herein serves as the provision of, or as a substitute for, personalized investment advice. To the extent that a reader has any questions regarding the applicability above to his/her individual situation of any specific issue discussed, he/she is encouraged to consult with the professional advisor of his/her choosing. City Different Investments is neither a law firm nor a certified public accounting firm and no portion of this content should be construed as legal, tax, or accounting advice.