Supported by Greenhaven Road Capital, finding value off the beaten path.
The reverse chronological podcast feed is fertile ground for serendipity. Hearing interviews with Ben Carlson on Planet Microcap and Ryan Flaherty on The Tim Ferriss Podcast consecutively helped coalesce ideas about better decision making.
1/ KISS (keep it simple, stupid). “People assume they have to make it complex to succeed,” said Carlson, “to change strategies with every macro environment.” Rather the best financial plan is a simple one that you’ll stick with.
Flaherty said that when elite athletes come to him there are only a few key exercises that they need to focus on. Among them in the hex squat. The performance of this activity is the best predictor for the speed of an athlete.
One mental misstep is to assume complicated solutions are better. This isn’t always the case.
The first dog I owned, a labradoodle, was having running issues. She could run alongside me just fine but would limp around the next day. The vet suggested surgery in his office or laser surgery in Columbus Ohio. The three thousand dollar surgery seemed like a complicated solution, so instead of running we spent the summer swimming and the problem went away thanks to simple rehabilitation.
2/ Learn the basics. “For people trying to understand how the market works, for how business works, you can do a lot worse than dabbling in stock picking when you’re first starting out,” said Carlson. The goal isn’t to jump in and start accumulating ten baggers, but see how the game is played. Good decision makers build up a deep understanding.
Good decision makers/investors don’t start buying Apple puts. That’s like the couch potato joining a CrossFit gym to bang out overhead squats. Flaherty says he’s amazed at the number of people who start doing exercises without really knowing how to do them. If you want to learn how to do the Olympics lifts, Ryan says, find someone to teach you how to do them.
In investing or fitness, don’t expect to go from novice to professional. It takes time to get good at something and you’re better off starting with the basics.
3/ How committed are you? The largest constraint for health and wealth is time. Flaherty says that even professional athletes come to him with limited time. Everyone has a full slate of commitments and they can only do so much.
Carlson says much the same about investing. “(Individuals) either don’t have enough time or they don’t have the skill set to approach the market.” If you aren’t willing to put in the time to figure things out then active (microcap) investing probably isn’t for you. Fortunately, there are many other options such as index funds.
Steve Pressfield has written about the differences between professional and amateurs. The crux is that professionals show up every day, rain or shine, whether they’re in the mood or not. It helps if you at least somewhat enjoy the activity. Some runners and writers, for example, share the attitude, I don’t like running/writing, but I like having run/written.
4/ Compounding. At the end of the interview, Flaherty said that he often gives the book The Slight Edge to people as a gift. The idea in that book is that if you do a lot of little things in your work those will compound to large advantages later on.
This is a natural link to investing. When Carlson is asked about how investors can tune out the noise (Example: My Friend is Beating Me) he says that two things tend to work. You can absolve yourself of any news and take the Rip Van Winkle approach. This only works because of compounding. This ‘8th wonder of the world’ is what allows us to delay gratification.
5/ Fix your weaknesses. A problem that amateur and professional athletes both have is weak supporting muscles. It’s fine to build up the major groups says Flaherty, but it’s not fine to neglect the supporting muscles. Though they play a smaller role, they could still be the weakest link a chain that breaks.
For the investor, the weaknesses move from tendons, ligaments, and small muscle groups into their head. Wise investors explains Carlson, need emotional discipline. An ability to stick with the plan, be humble, and avoid negative herding tendencies. Having a financial advisor – like Carlson – is a firebreak for rash decision making. Another is the checklist.
It’s hard to fix physical or mental weaknesses yourself and that’s why external sources; coaches, checklists, training partners, mentors, books, etc. help so much.
6/ Permanent loss. “True risk,” says Ben, “is that which is irreversible.” Investors are fine until they lock in an outcome. He summarizes Bernstein, saying, volatility is a while deep risks come from permanent decisions.
Professional athletes are like money managers in that one big mistake can ruin their careers. This is why we see people going to coaches like Flaherty to get better, stronger, and healthier. Work on the little things when things are good so that you can draw on them when things are not.
Thanks for reading,
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