I’m writing to you from a luxury resort on the beautiful island of Antigua. Don’t worry, I haven’t gone soft or anything. I’m still a value investor and I got an insane deal on a 200-year-old historic hotel at Nelson’s Dockyards—an old English military base.
Why am I here? Very simple. I’m taking some time off. You see, investing isn’t so much about analysis—any fool can identify a cheap stock with a strong tail-wind—it’s about process. Part of that process is remaining disciplined. Without a repeatable process and the discipline to follow it, what do you have?
Experience tells me that when I get one wrong, the worst thing I can do is re-load immediately, “I’m gonna make it back on this next one,” is a recipe for going broke. When I make a mistake, I always step away for a few days, clear my mind and make sure my next investment isn’t emotional. When I get two large positions wrong in a row, I take a much longer break.
I have two core investment strategies; small cap growth/fallen angel rebounds and capturing an inflection in a macro theme through equity investments—often these strategies overlap to some extent. These give me multi-bagger returns on a concentrated portfolio. The big wins come from that stack of ideas. I then supplement this with some event-driven trades. I know that to find the next great theme like shipping, I need a clear mind. I need to think differently and see things as a true contrarian. You can’t do that when you’re still dwelling on what went wrong on the last one. It’s all about putting some space between the last trade and the next one.
After booking my Tesla (Tesla – USA) put spreads, I booked all of my other short exposure (most of what I was short had shades of the same Ponzi Scheme), booked all my event-driven positions so I don’t have to watch them and then booked a flight to Antigua. Don’t get the wrong idea; my loss on Tesla wasn’t particularly bad—I let a nice gain become a few hundred basis-point loss—the loss itself was well within my range of expectations. However, I have rules and I stick to them. Two mistakes in a row, and I step away for a few weeks.
The past few years have been pretty incredible on the performance side; AIM CN, JYNT, SBLK, STNG, VMD CN—almost all of them better than doubles and near max position weightings on entry (and this excludes many others that I didn’t speak about). I’ve found that after a great run, I eventually get a few wrong. Antero (AR – USA) and now Tesla. That’s my cue to step back, re-assess and come back with a clear mind. In the interim, we’re going to explore the Caribbean together (expect some updates).
On Friday, before heading out, I stepped in for Patrick Ceresna on this week’s episode of Market Huddle. Kevin Muir and I covered a lot of topics, but most importantly, I got on his psychology couch and we talked about the need for discipline in investing. That part starts at the 57:30 mark (it’s episode 51). Stepping away after a losing streak is one of the hardest but most essential things you can do.
Hope you enjoy.