Friends,
When I (Stoffel, here) think about antifragility, I think about ways to help my body benefit from stressors. Lifting weights, bouts of deep work, and putting myself in situations that are a little new and scary are all examples of this. Of course, each needs a long enough recovery period to consolidate any gains.
But while it may seem like I'm only gaining from these activities, that's not entirely true. My muscle fibers suffer micro-tears when I lift weights, my brain is exhausted after a few hours of deep work, and my nervous system can be on high alert after trying something new.
In his eponymous book, Nassim Taleb makes it clear: for a system to be antifragile, some parts of the subsystem necessarily need to be fragile. And in some cases, the fragile sub-parts are us, individuals:
"The benefits of errors are often conferred on others, the collective -- as individuals were designed to make errors for the greater good, not their own."
Applied to investing
Recently, I fed all of my investment moves over the last six years to Claude. I wanted to ask some questions about my performance.
What I found was interesting, and humbling:
- My mistakes of commission (bad investments I actually made) were fairly small: my worst realized gains were smaller than I thought.
- My mistakes of omission (gains I lost by trimming my winners) were monstrousβoutweighing everything else by orders of magnitude.
Think of it this way: over one period that I studied, my actual investment returns were 15.7% per year.
That's not bad at all. But if I had been more disciplined about letting my winners run until they were over 10% of my portfolio, those returns would have been much better: 23.3% per year.
Over a period of six years, those are enormous differences -- totaling hundreds of thousands of dollars.
The exercise has forced me to adjust my approach to investing. Namely: while valuation will stop me from adding to richly valued holdings, I will try to only trim them when their size becomes too large for comfort in my portfolio.
Learning from each other
The tricky thing about Taleb's observation is that, taken at face value, we are limited in how much we can benefit from our own mistakes.
But that's where the power of community comes into play. When we are all willing to tame our egos and own our errors publicly, we create a feedback system where everyone can benefit. By making ourselves (short-term) fragile to others' opinions, we gain (long-term) antifragility by learning from them.
So here's what we'd like you to do. Respond to this email and let us know -- broadly speaking -- about your biggest investment mistake, and how you've adjusted your approach because of it.
Mine has been clipping my winners, and I'm adjusting by letting my winners run longer than I have been.
We'll publish (anonymously, of course) some of the responses next week so we can all get better from each other. That's the power of an antifragile learning and investing community. And over the long run, the benefits of making yourself a little bit vulnerable can pay off many times over.
Wishing you investing success,
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Brian Feroldi, Brian Stoffel, & Brian Withers
Long-Term Mindset
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