Friends,
Over the past few months, I (Stoffel, here) have started a semi-regular poker game with other dad friends. I mention this because both of my kids have noticed the chips and cards and asked how to play.
This has led to a new weekly tradition: playing poker (no money, only chips) on Sunday nights as a family. And a funny thing has happened: my 8-year-old son has routinely won.
The virtues of patience
It's worth pointing out that this little guy is usually impulsive. When he was four, he ran toward the ocean when a shark showed up, while his older sister wisely ran away. We've often times found candy wrappers hidden throughout the house because he can't resist taking the sweets.
At poker, he knows when he has a good hand, and he's not afraid to play it. But for whatever reason, he's bucked his normal instincts when he doesn't have much to play for: he folds his hands more than the rest of us. And it has worked out very well for him.
Just don't make mistakes
This phenomenon reminds me of Charlie Munger's advice to "invert -- always invert." Instead of asking how to win at poker, we should ask ourselves what we'd do if our goal was to lose. The answer: bet on every hand no matter the cards you're holding, and bluff regularly.
In the 1970s, physicist and engineer Simon Ramo noticed a similar dynamic in tennis. In expert tennis, 80% of points are won (you score by hitting the ball so well your opponent can't get to it). In amateur tennis, 80% of points are lost (you score because your opponent hits the ball out of bounds or into the net).
The point is: when you're getting started, don't focus on dominating your opponent; just focus on not making mistakes. The rest will take care of itself.
Applied to investing
The parallels to investing are obvious. We can use Munger's advice, combine it with Ramo's findings, and ask ourselves: what's the best way to consistently lose to the market?
The answer: make knee-jerk snap decisions without building in necessary friction that forces you to stop, think, and digest new information before making any investment decisions.
For the longest time, I was forced to do thisβnot because I was disciplined, but because The Motley Fool's trading policy required me to go a certain number of days without talking about a stock (and get clearance beforehand) if I wanted to buy or sell it.
That friction felt like a burden at the time. But I've recently gone back over my results in the years since I left, and I've come to the conclusion that over the long term, that friction would have led to even better results than I have today. So now I'm looking for ways to build that friction back in.
This would be wise for you to consider doing for yourself. We were built to make snap decisions when life and limb were on the line back in our hunter-gatherer days. But we aren't in that environment anymore, and by building in friction, we give our psyches a chance to get out of that fight-or-flight, fear-or-greed mindset and approach our decisions from a more whole, centered place.
Whether it's an investment decision or something far more important, taking this approach will almost always lead to better outcomes.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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