The mistake we often make when valuing a stock is overestimating the business growth potential, how much free cash flow it can generate, and so on. We extrapolate a spurt of excellent performance caused by temporary changes such as a brief supply and demand tailwind into the distant future. Or sometimes, we just fail to […]
In tennis, winners in amateur level competitions are often those that make the least number of unforced errors. The same can be said with investing. The number of mistakes you make (and the losses on each of them) determines your long-term return more than how much you make when you win. There are two […]
Thinking in Systems Systems are like Russian nesting dolls—a system that has its own subsystems is also part of a larger system which is part of another larger system. As an example, a supply chain consists of many different industries where within each industry, sit hundreds of companies. Each of these companies is further made […]
Philip Tetlock spent 30 years exploring what makes someone a superforecaster (not the ones you see on TV). In his book Superforecasting, he distills his work into several commandments on how we can improve our judgment without any complex algorithm. 1. Triage: Focus on questions where your hard work is likely to pay off […]
1. Experience may not be a good teacher Most elderly who died in Hurricane Katrina dies not because of their health, but because of confidence and denial. They have survived several hurricanes over their lifetime, so they believe Hurricane Katrina is no exception. Experience can create a close attitude that prevents us from seeing things […]
What is your biggest investing mistake? Ask this question and you’ll recall the stock that gave you the biggest losses. It is intuitive. Losses get attributed to “I have made mistakes”. We throw them into the ‘Bad outcome’ mental bucket so we can learn what have we done wrong in order to avoid making the […]