Investment philosophy

Before anyone start investing, I believe investment philosophy is the sine qua non of your investing journey. It helps you to have a center of gravity in your thought process, to bring you back when you stray from your original intention. As what Charles Munger once hinted: One should not forget what one set out to do.

Personally, I am a firm believer of business fundamentals determine stock price performance. Reason being this is the most logical thing to happen in the world. All capitalization value is the present value of all the future cash flow that you can get out from the company. The caveat of adopting this philosophy, is that you need to have a long time horizon. Investors today are having shorter and shorter time horizon, and this works to their detriment. They seek excitement instead of returns. Actions more than profits. It is in human nature to not being able to sit their ass down and do nothing, as what French philosopher, Pascal said: "All of humanity's problems stem from man's inability to sit quietly in a room alone."

I personally have experienced such impetus to action, to do something, even though I have no idea what that action is going to benefit. But I find having Buffett as your imaginary mentor helps me to calm down and think rationally every action. Hence I think part of the reason why some investors succeed in their career is due to their genetic make-up. It's like inoculation, you either have the temperament or you don't. Being able to restrain your impulses and act rationally I believe is one of the most important trait an investor can have.

Having an investment philosophy is just the beginning. To be a successful investor, I believe curiosity must be your second nature. You need to always ask the question: Why, why why. Why some event happens, what is the cause? To do this effectively, Munger suggest we have latticework of mental models in our head so that we can see the world through this latticework and analyse the underlying factors. To gain this ability will require lifelong learning, and being able to think using multiple mental models from field as diverse as engineering to psychology. That is why Munger and Buffett are such avid readers. They try to learn as much as possible vicariously, to ingrain what they learn so that it becomes second nature because once your brain get used to this multidisciplinary thinking mode, you get a richer understanding of the world. This is why I believe what makes Buffett and Munger so successful at what they are doing.

I feel investing is sort of a lifelong meditation exercise for the mind. It trains you to be rational, to see what is really happening instead of being swayed by other people's viewpoint. It is not about being selfish and not receptive to other people's view, it is about having the confidence to be a realist.

Always remember Buffett's mentor Ben Graham once said "in the short term, the stock market is a voting machine; In the long term, it is a weighing machine." If you want to win in a voting contest, you have to know what million others are thinking. It is like being in a beauty contest where the winner is not the most beautiful contestant but the one that most other people THINK will be the most beautiful, and you yourself is one of the judges. In this case, you can hardly think outside the box because your action itself will have effect on others, which George Soros famously termed, reflexivity. On the other hand, weighing companies seems to be easier because you detach youself from all the reflexivity that others have on you and concentrate on what really matters. It is a perverse human nature to always try to do things the hard way. As Buffett always said "it is not neccessary to do extraordinary things to achieve extraordinary results." This quote has never been more apt in life and investments.

I will be in the next few posts introduce a few investment books that I find are impactful in my investing learning journey. I hope you guys have fun reading them as I have. It is always fun to learn something new, and it is this joy that kept me going in my investing odyssey.

Cordially,

Wei Heng