I told some of my readers I met up not too long ago that Bill Brewster’s The Business Brew is an emerging good podcast. Bill had an uncle that passed away tragically and left him with a sum of money.
This sum of money feels meaningfully large that it can provide for his family but it is not enough for him to live “financially abundant” in Investment Moats lingo.
So there is a fear that if March 2020 comes along, he is going to irresponsibly lose a large chunk of his money because he thinks he is a good investor when he actually do not know much.
His story feels like a lot of us who have a sizable chunk of money.
Thankfully, he did pretty well by all accounts but there is still that lingering doubts he hasn’t figure out yet.
The business brew is his podcast of bringing on his deep friends from financial Twitter to learn more and become better.
He is also the uncle to the kid who committed suicide when he found out that he had to pay back more than US$700,000 in debt on his Robinhood account.
In this episode, Bill interviewed renowned author, educator and adviser to hedge funds Adam Robinson. He is also a rated chess master and personally mentored by Bobby Fischer.
You can listen to the podcast here at 1.3x speed on Player FM – Adam Robinson – a Unique Mind
Adam and Bill dropped too much good stuff that I decide to list my interpretation here.
Whether you are a novice starting out or someone trying to figure out this investing game, or just a general wealth builder, there are little things you can learn from this conversation.
The way to describe my take away is that Adam articulate the subconcious realization at the back of my mind out in the open.
1. Either people stay embedded in their position or they stay on the sidelines.
One of the hardesting thing in investing is seeing clearly and fighting confirmation bias.
We all have a view or model of the world. For many instances, that model make a lot of sense.
Usually, something will happen and we will say “Huh, that does not make a lot of sense!” or “I shorted the stock, how much higher can the stock go?”
Usually, this thought will occur when you are on the losing side. It seldom happens on the winning side. Or they are on the sidelines.
When something does not make sense, it is really your world view or model is not aligned to what you are seeing.
Nov 19, pre-covid, Ray Dalio wrote a blog post saying “The world has gone mad and not making any sense.”
When your world view gets challenged that are two investment decisions:
- You step aside.
- You get onboard the new trend.
You don’t fight it.
An investor’s edge is that they have the time to realize something has change and do something before those who was still wondering why these things do not make sense.
By the time there is greater clarity, most often the trend has run its course.
2. Create Anti-Confirmation Bias
As soon as you put on a trade, you need to know the facts, the parameters, the scenarios that will tell you “I should get out when I see these things.”
From that point, instead of seeking information that prove you are right, you are searching for information, facts and parameters for you to get out.
3. Long Term vs Short Term
The long term is the climate the short term is the weather.
There can be a long term uptrend but there are multi-week corrections. It is important for you to figure out which time frame you are playing.
Know your edge in which specific time frame. If your edge is in the medium term timeframe, make sure you play in that time frame.
Switching your time frame may throw you off your game.
4. The Difficulty in Becoming Clear-Headed
Bill Brewster explains that there is a challenge to fight loss aversion and realize the market is pricing in a scenario that is six to eighteen-months forward.
Amidst a lot of people thinking “this doesn’t make sense!” and the carnage, we have to level-headed to realize that the market is discounting a world that is six to eighteen months into the future (in a way to some readers, this is also a new info as well) and to value how stocks will do longer than 19 months from now.
5. Bear Markets End…..
With a parabolic selloff, they usually do not start with a parabolic selloff.
6. First Order and Second Order Thinking
First-order thinking largely centres around what will happen. Most often, first-order thinking does not have novel insights. Everyone knows this.
Aug 5 2011, S&P downgrades US debts for the first time.
The first-order thinking would be to sell bonds.
The second-order thinking is if US debts are getting downgraded, things out there is REALLY bad. If things are really bad in the world, what is the safest investment?
The US bonds turned out to be a buying opportunity.
The stock market is a mix-martial arts arena. If you do not know your edge, others will eat you alive.
7. Risky Investment Strategies Masquerading as Safe Strategies
Bill explained to Adam that by all accounts, he did pretty well managing his private funds. However, he has been outperformed by his wife’s friends who bought Teledoc or anything that is a stay-at-home service.
These friends of his wife do not do valuation and it confounds how he should look at this situation.
Adam explains: The wife’s friends were taking risks that they did not know they were taking.
If a professional race car driver challenges a teenager in a race through residential streets, the teenager would have a chance of beating the race car driver. The race car driver would have enough risk management consideration while the teenager would not have much of these risk considerations.
In a way, many hedgefund managers were underperforming because they were observing enough risks that they need to risk manage.
8. Reframing Selling at a Loss
Opportunity cost is a good reframe to get you out from being risk-seeking in a losing position.
Your capital is tied to a loser while your other positions are doing great.
9. Lessons from Karate Kid
To become a California-state champion, the guy has 5 moves: Wax on, wax off, hang the fence, sand the floor, side to side, crane kick.
You don’t think mastery at everything, you just need to know a few things and practice them to death.
Know what you are good at and what you are not good at.
10. If You Don’t Like the Result You are Seeing, Change What You Do
Instead of doubling down on what you are doing when you are not seeing the result, change another method.
Change from day-trading to position-trading.
11. The Difference Between Playing to Win Versus Playing Not to Lose in Investment
There was this part of the conversation where Adam explains that you should figure out which works for you better: playing to win or playing not to lose.
However, the interesting thing about investment is that if you are playing to win, and you were not successful, your capital base is reduced.
When you lose, you have less to go forward. It is very different if you are a sprinter trying to excel in your craft.
That is why Buffett plays not to lose.
Not wanting to lose will force you to systemize things.
12. Discussing the Motley Fool Venture Capital Portfolio Approach
Bill contrast Buffett’s concentrated portfolio approach with David Gardner of Motley Fool’s approach of holding many small bets.
The appeal of David’s approach is that he can screen for stocks with great growth characteristics.
Because he keeps the position very small, he can withstand extreme volatility for each of these positions better than someone who deployed more than 5% of their capital into each stock.
In a way, this approach allows an investor to hold on to stocks that may eventually go to the moon better than a lot of people.
For context, check out this draw down chart of Apple, the biggest company in the world.
Adam explains that there is a problem with that strategy.
To do this, the investor needs a certain level of stubborness. The investor is the only one that can get them out of the trade.
This is a very specific strategy that works under particular parameters.
13. The Beauty of the Market Wizards Series
Adam recommends Jack Schwager Market Wizard’s series and Reminiscences of a Stock Operator if you are interested in investing because it will show you that each of the market wizards were doing phenomenonly well, yet their own style are so unique.
Bruce Lee said steal what works and add what is uniquely yours.
14. Surviving the Investing Apprenticeship
Learning about investing to beat the market is like going on an odyssey.
This is very much so if you are self-learning investing. Many do not know where to start.
Many will make a lot of silly mistakes at the start, unless you have good mentors.
Unfortunately, for a lot of them, they lose all their money before passing the apprenticeship.
So they key thing during those periods where you are floundering is not to lose all your money.
You don’t want to end up being super smart about investing but no capital left.
For some is a solitary pursuits for some they pursue in groups. Both have good points and weak points.
Adam says usually it takes 3 to 5 years for a person to figure out roughly the investing world.
15. The Current World is Not Sustainable
1929 to 1945 was a very tough period to live through. There were economic depression and world war. After the world war, the United States did not have the problems other countries have.
Their rebuild is a little different.
The American dream became “I want what mom and dad have, I just want more of it, and I am willing to get into debt to get it.”
This was exported into other countries as well.
The debt is pilling up. Debt is not a problem if you can grow out of it.
Growth comes from two sources which is population and consumption growth.
The issue is that population is collapsing. Despite all the incentives, China have the lowest birth rate last year.
We are going to deal with a long term population decline and this will destroy the market.
However, there will also be much opportunities in the venture capital space.
16. How Much Depression and Tiredness are There In this World
Adam wants us to do this Google Autocomplete experiment.
Type: “How can I learn to”
Here are my result:
One entry not shown on mine is how can I learn to trust myself again.
Type: “Why do I feel so”
Here are my result:
Half of them are energy related or eating disorder.
Type: “Why is everyone so”
Here are my result:
Kyith: my answers are different from what Adam saw.
17. Focusing Your Attention
Your attention should either be on the task-at-hand or the person you are currently talking to.
You should be immerse in what you are doing.
There should be no room for insecurity, self-doubt or negative emotion.
Charlie Munger: Take a simple idea, take it seriously.
18. How to Not be Stupid
Stupidity: Overlooking or dismissing conspiciously crucial information.
This means overlooking important information in front of view. You are literally blind but you did not know you ARE.
Adam says this is usually due to the following reasons:
- Information overload.
- A feeling of urgency.
- Being outside a normal environment.
- Being in presence of a large group.
- Be in the presence of an authority.
- Any activity that requires intense focus
- Physical and emotional compromise.
Most of the time, you won’t realize you are in the “stupid zone”. What can help is to be around people you trust who tell you that you are in the stupid zone.
Also, pause before taking THE action. Delay to think about the decision more thoroughly.
You will need to train yourself to do it.
Which one of these 18 points resonate with you? Let me know in the comments below.
I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.
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