Investing can be a lonely job.
On top of that, if you’re a classic semi-concentrated value investor with only 20 or so holdings, you probably aren’t buying and selling very often.
You might only find a few good ideas each year if you’re lucky. So what are you doing the rest of the time if you’re a full time investor?
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Probably, reading, reading, and reading some more. Things can get pretty damn boring at some points.
But when that potentially good looking idea comes along, it’s like Christmas all over again. I’m sure most of you are very, very familiar with that rush of excitement.
This is why we all love investing. Finding that next big idea. The next double, triple, 10 bagger, compounder, etc. That one idea that can turn your awful year around.
Yet for most investors, especially new ones to the game, that ‘rush’ can turn into your worst enemy. Why?
Because it’s easy for us to get caught up in the excitement of a new idea and buy too quickly.
As Richard Feynman is famous for saying, “The first principle is that you must not fool yourself – and you are the easiest person to fool.”
Want to make better investing decisions? You need to learn how to slap yourself in the face and approach each idea with as little emotion as possible.
So how do we prevent ourselves from jumping the gun too quickly?
It’s simple and we’re all experts at this already: procrastinate, and procrastinate hard.
Sleep on it, go to the gym, read something different. Whatever helps you distract yourself, do it and approach the idea with a clear head at a later point.
Why Procrastinating Can Help You Make Better Investing Decisions
“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
#1) It’ll Reduce FOMO (Fear Of Missing Out)
“I’m mimicking some very eminent psychologists Kahneman, Eikhout and Tversky, who raised the idea of availability to a whole heuristic of misjudgment. And they are very substantially right. I mean ask the Coca-Cola Company, which has raised availability to a secular religion. If availability changes behavior, you will drink a helluva lot more Coke if it’s always available. I mean availability does change behavior and cognition … In a sense these psychological tendencies make things unavailable, because if you quickly jump to one thing, and then because you jumped to it the consistency and commitment tendency makes you lock in, boom, that’s error number one.“
Why do we jump the gun on a new idea sometimes?
FOMO. We’re afraid of missing out on a great opportunity to buy this stock at this seemingly amazing price.
But is the value really as great as we think? Odds are that it isn’t.
Yet, you’ve gone through all this work, all this ‘deep’ due diligence and then what happens?
You want to commit. You want to be right because of all the effort you’ve put in. Everybody hates a sunk cost.
The commitment and consistency tendency was one of Munger’s big points in his talk on the Psychology of Human Misjudgment.
So procrastinate a little. Wait until that ‘itch’ is gone, and revisit the idea another day.
#2) Procrastinating Forces You To Extend Your Due Diligence Process
Ever think you might be on the wrong side of the argument in the first place?
In my recent post on why thinking backwards can help you become a better investor, I mention the example of Whitney Tilson and Farmer Mac.
Guy Spier once recommended Farmer Mac as a long idea to Whitney Tilson back before the crisis. Tilson, intrigued by the idea, recommended it to Bill Ackman to check out. What did Ackman think?
He saw it as a no-brainer short and Tilson ended up changing his mind and going short. Ackman ended up being right.
The longer you take to decide on a potentially new idea, the better your chances are of finding a hole in your thesis and a potential reason to not invest in the first place.
#3) Slowing Yourself Down Could Lead To A Better Buy-In Price
Value investors are known for always jumping in on an idea too early. Sometimes that’s a good thing, other times, not so much.
Michael Burry was in his credit default swaps position about two years before anything even happened.
Yet before becoming famous for his ‘Big Short’, Burry many times bought stocks too early and would continue buying them and adding to his position as the went even low.
He once even said: “It takes less than five minutes to find a bargain, and just another five minutes to see it get cheaper.”
Moral of the story? Take your time.