Investing right means to learn, survive and sustain

Probably you must have listened to Roger Federer’s commencement address at Dartmouth about a fortnight back. Also, you might have read so many interpretations from his speech to various fields of their own pursuits. Investing world too found so many parallels to his findings that could’ve been brought to your attention. I write here those pointers I found analogy to investing from his speech.

He said, “I came to the net, and I got passed again. It’s only a point. Even a great shot, an overhead backhand smash that ends up on ESPN’s Top Ten Plays: that, too, is just a point.Here’s why I am telling you this.When you’re playing a point, it is the most important thing in the world.”

“But when it’s behind you, it’s behind you. This mindset is crucial, because it frees you to fully commit to the next point and the next one after that with intensity, clarity and focus. The truth is whatever game you play in life, …it’s a roller coaster with many ups and downs.”

This is particularly relatable to stock investing. One might spend many hours and days to analyse a particular scrip, one might even prepare a possible forecast based on this analysis, there could be just no possible flaw in that too but once the stock is invested, now one needs to commit to the thesis and move on. There’s not much one could do except wait for your thesis to unravel; at times the investment won’t turn profitable despite the analysis turning correct. Many times investors rue at their losses and brood over it instead of bettering from the failed experience or worst bask in the limelight of an achievement, possibly a random one and try applying that multiple times.

When reading or listening to investing greats one common aspect we notice is about the virtue of patience, which allows investors make exponential returns. Whenever they narrate about the multi-bagger or the higher compounder in their portfolio, they usually also talk about the huge drawdowns and often prolonged ones at times, they faced while holding to that stock, testing their sanity and conviction. But how they continued to hold on to generating disproportionate wealth.

Roger goes on to add, “And it’s natural when you’re down, to doubt yourself. To feel sorry for yourself. You want to become master at overcoming hard moments… the best in the world are not the best because they win every point, it’s because they know they’ll lose again and again and have learned how to deal with it. You move on. Be relentless. Adapt and grow. Work harder, work smarter. Remember work smarter.”

This is another common aspect of all great investors; they repeatedly talk about learning. Munger goes on to make a point that investors should read and learn, learn continuously for life. He says, “I constantly see people rise in life who were not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that have it help, particularly when you have a long run ahead of you.”

That last sentence of what Roger said is very stark and important. As an investor, one needs to maintain a journal on their investment decisions which details on the conditions, circumstances and rationale that made them to take a call. And when they assess later how correct or deviated were they and what were the aspects they think they could’ve done better. That learning of what better becomes the basis for the next investment decision so that the entire process begins to get refined over a period.

Most importantly he says, “In the 1526 singles matches I played in my career, I won almost 80% of those matches… what percentage of the points do you think I won in those matches? Only 54 per cent.” If 50 per cent is random, luck or fluke then the difference between luck and great is just 4 per cent. In investing, it’s important to not just make wins but to avoid losses, to survive which could then help to sustain.

(The author is a co-founder of “Wealocity”, a wealth management firm and could be reached at knk@wealocity.com)