Value Investing

Sins of Investing – Gluttony (Part 6)

Sin 6: Gluttony – Living for today

Lets face it, we all give in to instant gratification from time to time. How often are we able to delay gratification for the sake of the longer term? Perhaps putting off the many creature comforts / luxuries when we are younger so as to be able to save and invest that amount for the longer term. While it may seem little, but accumulated, it could mean quite a substantial war chest.

How many of us has the discipline to set aside a percentage of our pay just for investments? While I do not have the statistics, most of my friends do not have such a practice. The reason being could be most do not have the time to monitor the markets, have no idea how to invest or just having the mindset that they are still young and this is not an issue of concern yet.

Overindulgence

Investors who make large concentrated bets are rare and few. Most of them are activist investors or a major controlling stakeholder in the company. While large concentrated bets can yield huge returns, how many live to tell the tale? For every investor we read sharing their success story, how many went horribly wrong?

Just like a glutton gorging on a delicious meal – it feels good until it doesn’t, and the damage is often irreversible. History is replete with tales of individuals who had all their money invested in company stock, companies like Enron, Worldcom, Blumont; all had huge, fabulous runs and disastrous endings.

Constantly adding onto a company while the price keeps running up thinking that we have finally hit a winner may not always be a wise choice. Assessing the margin of safety is always crucial when thinking of adding more to a stock whose price is running up.

Concentrated bets are a great way to make loads of money and are great stories to tell as long as you are right. However, the problem with concentrated bet is having the ability to constantly repeat successes. How many of us truly can say that we have such an ability?

 

Seven sins

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