- in Investing
As an investor, I am in the business of buying assets that:
- Go up in value due to an increase in earnings or due to speculative mania.
- Pay a stream of cash to me as a dividend or other type of income stream.
- Combine both items one and two.
I am also in the business of:
- Exiting positions that I thought would do any of the three above but didn't work out. Aka, "Cutting my losses."
- Exiting positions that worked but that are now overvalued, have come to dominate my portfolio, or because I see other prospective investments that present better risk/return characteristics.
- Recognizing that taxes in particular and fees more broadly will influence my decision-making for all five points above.
To implement this business I:
- Spend nearly all of my time reading, researching, and thinking--only very rarely moving capital.
A Few Nuances To The Game
Don't Overtrade. I have a bias against over-trading and excessive action because I risk making poor decisions just to feel like I'm doing something. I do allow 1% of my portfolio to be consumed with short-term speculations to scratch the itch of needing to take action without letting lower-quality decisions creep into the bulk of my portfolio. (Note, I do make money on this 1% speculation, but these profits are much less tax-efficient and the risk/reward characteristics of this trading is of a lower quality than the rest of my investments. The trading is a lot of fun and constantly deepens my feel for the markets and for the psychological aspects of investing/trading/speculating).
Think In Terms of After-Tax Returns. Due to tax efficiencies, my personal bias is towards step 1 above rather than step 2. However, I'm ok with step 3 as well.
The Business Of Investing In One Sentence
In summary, my job is to move capital (aka invest) to capture returns (items 1-3 above) and to minimize losses due to mistakes (item 4). That's it. That's the job. Simple, but not easy.