You would not be reading this if you did not want to improve your investing results. Provided that you already have a rational investing philosophy, the key to improving your results lies in improving your investment process.
I have been investing for over twenty years. Like you, I want results. If over time I can’t beat the market averages, what’s the point? I’d rather buy an index fund and forget about it.
The good news is there’s plenty of evidence that this goal is achievable – not easy, but achievable.
Odey Discusses Howard Marks’ Astute Observation On Why Hedge Fund Alpha Is Increasingly Rare [January Letter]
According to a copy of the firm's January investor update which ValueWalk has been able to review, the Odey Asset Management Odey Special Situations Fund returned 7.7% in January, outperforming its benchmark, the MSCI World USD Index, by 8.7%. Q4 2020 hedge fund letters, conferences and more The $60 million fund, which Adrian Courtenay manages, Read More
One thing I have learned in studying the great investors is that they all have a great investment process that drives everything they do.
There’s no secret formula. No valuation algorithms hidden away in Omaha. No short cuts. You need to create a solid investment process based on a rational investing philosophy that has been proven to generate market-beating results.
The outcome of some activities is entirely a function of skill. Examples include chess and the 100-meter dash. Other activities, such as rock-paper-scissors or roulette, are based entirely on luck.
Investing is somewhere in the middle. Its outcome is a function of both skill and luck. That is why it is difficult to identify if an investor has skill. A know-nothing investor can be lucky and a skilled investor can have periods of under-performance.
Serious investors recognize this reality and focus on what they can control. They focus on their investment process knowing that – over time – real skill will reveal itself in superior long-term performance.
This leads us to a definition of process.
A process is an organized group of activities designed to constantly improve skill and increase its role in an outcome, thereby minimizing – to the degree possible – the role of luck.
AN EXAMPLE FROM SPORTS
You can learn about the power of process by studying football coach Nick Saban. He won college BCS National Championships at LSU in 2003 and at Alabama in 2010.
Saban’s success comes down to an almost maniacal focus on getting better in all aspects of the game – an effort he simply calls The Process.
Saban’s process includes recruiting, conditioning, practicing, work ethic, strategy, and organizational structure. His recruiting process alone has five distinct steps. The process begins as soon as the season ends and it continues year round.
Saban’s process is an effort to squeeze chance from the equation and increase the odds of winning.
Saban talks about how you can’t skip steps. You can’t get from point A to point Z without passing through point B and that if you skip a step, you won’t achieve your desired outcome. Saban talks about finishing.
Saban’s process is not about genius, better information, or even better athletes. It’s about sweating the details. It’s about working harder and smarter and looking to exploit the weaknesses of your opponents.
In this series of blog posts, I’d like to share ten ideas to improve your investment process. I’ve learned these ideas from my own experience and from studying the great investors.
Before laying out the ten ways to improve your investment process, I want to say a word about passion. Passion is essential if you want to be a great investor. You need to love what you’re doing.
If you choose to pursue becoming a great investor, you will spend a great deal of your time reading and thinking. Many days your work will not appear to be fruitful. Only occasionally will you find a truly worthwhile idea. Then, if the idea checks out and you make a purchase, you will need to patiently wait for your thesis to play out. This may take several years.
Unless you love what you’re doing and can derive pleasure from the process of learning and mastering your craft, it’s unlikely that you will persevere. This requires passion.