- in Investing
As an investor, I am in the business of buying assets that:
1. Go up in value due to an increase in earnings or due to speculative mania.
2. Pay a stream of cash to me as a dividend or other type of income stream.
3. Combine both items one and two.
I am also in the business of:
4. Exiting positions that I thought would do any of the three above but didn’t work out. Aka, “Cutting my losses.”
5. 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.
6. Recognizing that taxes in particular and fees more broadly will influence my decision-making for all five points
To implement this business I:
7. 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.