This is a fantastic breakdown of the 'human software' bugs that plague investors. In engineering, we rely on redundancy and fail-safes to prevent catastrophe; an investment journal is essentially a fail-safe for the mind. I particularly appreciate the distinction between Owners and Speculators. From a physics perspective, speculators are focused on the 'velocity' (price movement), while owners are focused on the 'mass' (the underlying business value). If the mass is growing at 20% a year, the short-term velocity is just noise. Excellent roadmap for staying rational.
Millions of people think so. And I really don’t see that there is any other answer to that.
Sure, art isn’t a popularity contest. At its heart, it is about giving an audience an aesthetical experience or emotional reaction. It doesn’t need to be positive. If it’s intended to be ugly and revolting, and makes you go “Ew”, it achieved its purpose. If it’s intended to be beautiful and you find it ugly and revolting, it still achieved its purpose, because you still had an aesthetical reaction.
Banksy’s art uses a comparatively simple technique, and is quite stylised. It draws on poster art, it’s intended to be spray painted on walls, and it’s intended to evoke emotions using rather basic graphical elements. It’s more about juxtaposition – as he’s said himself, his art is designed to be quick to make, and can be as basic as “I plonk a traffic cone on the head of someone else’s statue and I’m done”.
I say it’s hugely successful at what it tries to do. It’s much more political than most art; the intended emotional reaction can arguably be described, in brief, as “fury that the world is a much worse place than it ought to be”. The artwork is extremely good at evoking that feeling. From that perspective alone, it’s a smash hit.
Personally, I also find it very aesthetically pleasing. I like to look at it. It might be stylised and basic, but another word for that is refined. If it were poetry, it’s like the collective corpus was made up of pastiches of The Iliad, tomes you’d not want to drop on your toes, or elaborate sonnets where you need to drag around a few reference works to just understand the allusions, and then there’s this one guy spray painting haikus everywhere.
Right… solid framework. One thing worth layering in: it's easier to "be greedy when others are fearful" when the fear-to-greed cycle is organic. Harder when the cycle is being manufactured.
This past Monday, $1.5 billion in S&P futures was purchased five minutes before a Trump Truth Social post reversed an Iran escalation. $580 million in oil futures moved in a single minute fifteen minutes before the same post. The FT and BBC documented the trades. Iran denied the "talks" that triggered the rally.
The 48-hour rule works when volatility is market noise. When the volatility is a controlled cycle — escalate Saturday, reverse Monday, repeat — the question shifts from "am I being rational?" to "does someone else already know how this resolves before I do?"
Not saying panic. Just saying the owner's mindset assumes a fair board. Worth checking that assumption right now. Tracking the timing of these cycles at Straight Up Goat.
The value of writing down your thesis before making a purchase is often underestimated. I would add an even more challenging practice: writing down in advance why you would sell under specific conditions. The biggest psychological trap I've seen in thematic investing isn't making the wrong buy; it's holding on too long because you mistake price drift for thesis drift. A 30% drawdown in a position is just noise if the order book remains intact; it's a warning sign if the competitive moat has changed. I'd ask: do you believe the 48-hour rule applies equally when you're assessing sector rebalancing versus single-stock decisions? The psychology seems fundamentally different when the 'sell' decision involves an entire basket of positions.
Really enjoyed this one. Curious how you think about the tension between the 48-hour rule and acting quickly on genuine opportunities during sharp sell-offs. For example, in March 2020, the window to buy quality compounders at 30-40% discounts was roughly 10 trading days. Do you apply a different framework when the entire market is on sale vs. when a single stock declines?
Personally, every investment decision I made in a hurry ended up being the wrong decision.
Once in a while, Mr. Market will provide us with amazing opportunities. In general, delaying your decision by at least 48 hours won't make a big difference in this one. During COVID you had several weeks you could buy high-quality companies at cheap valuation levels. :)
I noticed your definition of owner earnings is different than I would usually hear (eg Buffett's OCF - maintenace capex). Am I missing something or are you redefining/expanding on the definition?
The formula we’re using is basically a simplified version of Buffett’s definition of Owner’s Earnings. We like to keep things as simple as possible for our readers in general. :)
Quality investing sounds obvious until you're sitting on a 40% drawdown in 2022 watching your "compounders" get cut in half. The psychological edge isn't in knowing quality works long-term. It's in not selling when every headline tells you to. Most investors fail not because they picked wrong, but because they held wrong.
By definition, if you're an active investor you don't follow the crowd. And not following the crowd means facing periods of out- and underperformance. If you can't mentally handle periods of underperformance, it will be very hard to beat the market in the long term
This is a fantastic breakdown of the 'human software' bugs that plague investors. In engineering, we rely on redundancy and fail-safes to prevent catastrophe; an investment journal is essentially a fail-safe for the mind. I particularly appreciate the distinction between Owners and Speculators. From a physics perspective, speculators are focused on the 'velocity' (price movement), while owners are focused on the 'mass' (the underlying business value). If the mass is growing at 20% a year, the short-term velocity is just noise. Excellent roadmap for staying rational.
Much appreciated, Young Min Kim!
Millions of people think so. And I really don’t see that there is any other answer to that.
Sure, art isn’t a popularity contest. At its heart, it is about giving an audience an aesthetical experience or emotional reaction. It doesn’t need to be positive. If it’s intended to be ugly and revolting, and makes you go “Ew”, it achieved its purpose. If it’s intended to be beautiful and you find it ugly and revolting, it still achieved its purpose, because you still had an aesthetical reaction.
Banksy’s art uses a comparatively simple technique, and is quite stylised. It draws on poster art, it’s intended to be spray painted on walls, and it’s intended to evoke emotions using rather basic graphical elements. It’s more about juxtaposition – as he’s said himself, his art is designed to be quick to make, and can be as basic as “I plonk a traffic cone on the head of someone else’s statue and I’m done”.
I say it’s hugely successful at what it tries to do. It’s much more political than most art; the intended emotional reaction can arguably be described, in brief, as “fury that the world is a much worse place than it ought to be”. The artwork is extremely good at evoking that feeling. From that perspective alone, it’s a smash hit.
Personally, I also find it very aesthetically pleasing. I like to look at it. It might be stylised and basic, but another word for that is refined. If it were poetry, it’s like the collective corpus was made up of pastiches of The Iliad, tomes you’d not want to drop on your toes, or elaborate sonnets where you need to drag around a few reference works to just understand the allusions, and then there’s this one guy spray painting haikus everywhere.
Truly appreciate your insights here!
"Doing nothing is a strategy" might be the most counterintuitive piece of investing advice.
Right… solid framework. One thing worth layering in: it's easier to "be greedy when others are fearful" when the fear-to-greed cycle is organic. Harder when the cycle is being manufactured.
This past Monday, $1.5 billion in S&P futures was purchased five minutes before a Trump Truth Social post reversed an Iran escalation. $580 million in oil futures moved in a single minute fifteen minutes before the same post. The FT and BBC documented the trades. Iran denied the "talks" that triggered the rally.
The 48-hour rule works when volatility is market noise. When the volatility is a controlled cycle — escalate Saturday, reverse Monday, repeat — the question shifts from "am I being rational?" to "does someone else already know how this resolves before I do?"
Not saying panic. Just saying the owner's mindset assumes a fair board. Worth checking that assumption right now. Tracking the timing of these cycles at Straight Up Goat.
The value of writing down your thesis before making a purchase is often underestimated. I would add an even more challenging practice: writing down in advance why you would sell under specific conditions. The biggest psychological trap I've seen in thematic investing isn't making the wrong buy; it's holding on too long because you mistake price drift for thesis drift. A 30% drawdown in a position is just noise if the order book remains intact; it's a warning sign if the competitive moat has changed. I'd ask: do you believe the 48-hour rule applies equally when you're assessing sector rebalancing versus single-stock decisions? The psychology seems fundamentally different when the 'sell' decision involves an entire basket of positions.
Couldn't agree more, Adrien!
Really enjoyed this one. Curious how you think about the tension between the 48-hour rule and acting quickly on genuine opportunities during sharp sell-offs. For example, in March 2020, the window to buy quality compounders at 30-40% discounts was roughly 10 trading days. Do you apply a different framework when the entire market is on sale vs. when a single stock declines?
Personally, every investment decision I made in a hurry ended up being the wrong decision.
Once in a while, Mr. Market will provide us with amazing opportunities. In general, delaying your decision by at least 48 hours won't make a big difference in this one. During COVID you had several weeks you could buy high-quality companies at cheap valuation levels. :)
Same here. Appreciate your insights!
You should check out @The Alpha Brief! Excellent articles!
I noticed your definition of owner earnings is different than I would usually hear (eg Buffett's OCF - maintenace capex). Am I missing something or are you redefining/expanding on the definition?
The formula we’re using is basically a simplified version of Buffett’s definition of Owner’s Earnings. We like to keep things as simple as possible for our readers in general. :)
Quality investing sounds obvious until you're sitting on a 40% drawdown in 2022 watching your "compounders" get cut in half. The psychological edge isn't in knowing quality works long-term. It's in not selling when every headline tells you to. Most investors fail not because they picked wrong, but because they held wrong.
Not sure whether I agree on this one.
By definition, if you're an active investor you don't follow the crowd. And not following the crowd means facing periods of out- and underperformance. If you can't mentally handle periods of underperformance, it will be very hard to beat the market in the long term
True. Sometimes the fundamentals are dead right, but the flow doesn’t come. So what should you do? Just wait… be patient
If you still believe in the long term prospects of the company, I would just be patient indeed!
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