So, Whats Your Investment Approach?
I woke up today to my lotto stock up 47%, on news they are raising $100 million to increase their stake in Movie Pass, a subscriber based platform aimed at movie-goers that has gone from 20,000 users to 600,000+ in the past 2 months. To be honest, the news it was up on is irrelevant, but more importantly, it should be noted that the float is thin and short interest is high, which creates a massive imbalance between demand and supply, causing violent 1-day moves like this. At the end of the day, stocks don’t go up or down because companies are performing good or bad, they go up because there are more buyers than sellers or vice versa, that’s it.
As an investor, we have to make the assumption that all the other players in the market are smarter and have access to more information than we do. By the time you formulate a thesis – that XYZ company is doing well because of smartphone sales – it is always too late. Smarter money already knew that months, or perhaps years ahead, and the fact that the average person knows about it is a signal to sell.
‘Buy the rumor, sell the news’. We’ve all heard of that saying in investing, but most sit there wondering ‘how the fuck can I buy the rumor without having some sort of inside information?’ Well, that’s one way of thinking, but that simply means you’re not being creative and unable to read the hints being flashed at you on a daily basis.
I like to consider the business of investing much like playing a sport. At the beginner level, you learn the basics. Intermediate, you perfect your technique. When you become an expert, your technique or game doesn’t get much better. What improves is your mental approach towards the game, which ultimately gives you the advantage you need to win. Always being prepared and always expecting the unexpected.
I play badminton at a fairly high level. The players I play with nowadays are current or ex-country representatives, and some have world rankings. From the outside looking in, they seem supernatural, able to hit every shot with full power and accuracy. But if you break it down, their shots may be no harder than someone at the intermediate level – there’s a limit to how much power you can use. What differentiates the two is their level of mentality – the art of anticipation.
At that level, 90% of the game is anticipation. Simply speaking, the players are guessing what will happen next and acting on it a split second earlier, giving them the ability to hit with full power where most cannot. Now couple that ‘guess-work’ with years of experience in the game and you have a perfected intuition – and 9/10 times they will ‘guess’ correctly. Even when they are not moving their minds are actively working, mapping out all the possibilities of the game. If you find yourself ‘reacting’ to a shot after it is hit, you will never have an advantage and will always be trying to catch up, much like the investor that makes investments based on what they hear in the news.
So, how does one know what investments to make? Clues are everywhere, it’s up to you to position yourself for the highest probability outcome, which often times is the least popular and most criticized position to take. The market ebbs and flows, to me, much like the rhythm of a badminton game. To others, it may mean something else, but it’s the same visceral feeling that provides the biggest gains – not the inside tip from a senior at work or a guy on the TV.