This month, we explore the power of patience, the ability of AI to increase entrepreneurial activity, and the math behind managing concentrated stock positions.
#1 – “The Education of a Value Investor” by Guy Spier
“As a long-term value investor, my interests are in stark opposition to the interests of Wall Street. What I need to do is simply invest in a handful of great but undervalued businesses and then stay put. Wall Street is rewarded for activity. My shareholders and I are rewarded for inactivity.” – Guy Spier
This truth runs counter to human nature because, in most areas of life, we are rewarded for doing more. When it comes to long-term investing, however, it often pays more to do less.
#2 – Ken Griffin Interview on Exchanges at Goldman Sachs
“But number two, the competitive moats of our society, within our corporate society, are all being filled in at breathtaking rates. Now, what does this mean? This means that we’re likely to see a golden age of entrepreneurial activity. Entrepreneurs will be able to launch new businesses at breathtaking speeds, and we’ll be able to take on incumbents in ways that you just couldn’t do 5, 10, 15, 20 years ago.” – Ken Griffin
I’ve returned to this quote from Ken time and again. It’s the most encouraging perspective I’ve encountered on how and why AI could end up creating more jobs than expected in the long run.
#3 – “Managing Concentrated Stock Wealth” by Tim Kochis
“In the simplest terms, suppose the concentrated position promises a return of 30 percent but has only a 20 percent chance of accomplishing it, and the diversified alternative promises only a 9 percent return but has a 90 percent probability of success. For a client who can’t afford the risk of the concentration, the diversified alternative seems more appealing.” – Tim Kochis
When managing concentrated stock positions, we are constantly weighing two competing priorities: reducing downside risk and preserving enough upside exposure if the company continues to outperform. This is a delicate trade-off, and the probability-based model above provides a clear, rational framework for thinking through the decision.
My goal for these blog posts is to provide useful information so that you can make more accurate decisions.
- Noise includes facts/data/news that cannot be processed into useful information (<— WHAT MOST STUFF IS)
- Useful information can be used to make more accurate decisions (<— WHAT I’M TRYING TO PROVIDE)
Since there is an endless and ever-growing amount of things to learn, I hope that these posts are helpful in summarizing important topics related to investing.
