From Basketball to Investment
Summary of My Recent Reviews on Life and Work #2
During my college years playing on the college basketball team, my biggest takeaway from playing wasn't about how many games we won, but rather a lesson - while the games were thrilling, what truly elevated your skills was the daily practice and targeted training sessions between games. It might not have provided the same dopamine rush as the actual matches, but it led to genuine improvement, fueled by dedication and sweat.
Later, in my professional life, I tried to apply this lesson to my work. I noticed that after completing a task at work, there was a tendency to move on to the next task without much reflection, akin to continuously playing basketball games without focusing on training and reflection. So, I began allocating time for "training and reflection" on a regular basis, aiming for better performance in the next round. This approach has proven effective for me to this day.
Last year, I shared my Reflections on Investing in Public Markets. This year, I want to continue this theme by further discussing some reflections and learnings from my recent games and training sessions in the realm of public market investing. These will be divided into two parts: learnings from my coaches, and reflections on recent games and training sessions.
Learnings from My Coaches
John Templeton: For investors, there are only two states: on the court and off the court. Leo's Note: This applies to basketball players as well. There's no in-between. If you're on the court, you must be diligent and stay competitive at all times, otherwise retirement might be your best option.
Warren Buffett: A successful investment career doesn't require extraordinary intelligence, extraordinary economic insight, or insider information. All it needs is a well-constructed knowledge framework that helps in decision-making and the ability to avoid emotions that could disrupt that framework.
Warren Buffett: Choosing investors and choosing entrepreneurs: if temperament is the most important personal asset in managing money, in business, it's passion.
Charlie Munger: Avoid "talking too openly or frequently" about your holdings, as doing so makes it difficult to change your mind and admit your mistakes.
Berkshire 2024 Shareholder Letter: Human nature guarantees there will always be investment opportunities. Leo's Note: What you need is patience and courage to wait for the collective emotional instability to emerge. This is not easy.
Nassim Nicholas Taleb: Antifragile. Leo's Note: It's much easier to figure out what is fragile than to predict whether a particular event will harm it. Starting from antifragility, think about the attributes that investment targets should have, how to design the ecosystem of your business, and how to design your own life.
Peter Lynch: Avoid making important decisions when busy; furthermore, if you can avoid being busy altogether, that's even better.
Yongping Duan: The first-mover advantage doesn't necessarily hold true. Leo's Note: The first-mover advantage only benefits players if it helps them reach the critical mass or achieve better network effects, etc. Otherwise, it's just a cost paid for educating the market for other players.
Reflections on Recent Games and Training Sessions
Designing Your Surroundings:
Delaying gratification and prioritizing long-term results will benefit oneself. However, merely applying this principle rationally is not enough. Building a harmonious ecosystem that supports the application of this principle is equally important. This includes where you place your office and how your investor base is structured.
Choose people to hang out with wisely. Importance of this is often underestimated.
Mechanism Design:
Strategies must align with your tolerance for pain, volatility, and loss.
Conduct a "premortem" before making any major investment decisions. Envision yourself in the future and ask, "Why would this decision prove to be a disaster in hindsight?"
Perform a bearish analysis on every target company you plan to hold. Think from the perspective of short sellers.
Decision Making:
One hastily draws conclusions when we shouldn't. Refraining from judgment is a key factor in rational behavior.
Investors do not profit from taking action; investors only profit from making the right decisions.
Think in terms of probability: develop a rational appreciation for bets with pricing errors, asymmetric risks, and rewards. If the odds are not in my favor, I won't play.
Emotions and moods often distort our perception of things and our judgment of risk. Examine whether you are in a "psychological and physiological state conducive to making the right decision." This habit has immeasurable effects not only in the market but also in life.
It doesn't matter if others think the idea lacks originality; what matters is whether the idea is effective. Investing is not like Olympic diving, where judges award points for difficult maneuvers.
Market:
The only way to beat the market is to deviate from it. While it may be easier to stick with mainstream views, you lose the potential to beat the market.
How can I buy a stock at an extremely low price? You must buy when others are desperate to sell.
View the world as cyclical and oscillating rather than linear in development.
Information: Focus on information with a long shelf life. For example, founders’ passion vs. sellside research.
As always, thanks for your reading and I hope you enjoy it. Stay safe and see you next time.