Over a period spanning more than seven years, from June 2006 to October 2013, I examined 1,866 investments, representing a total of 30,874 trades made by 45 of the world’s top investors (Location 68)
I had given each of these leading investors between 20 and 150 million dollars to invest for my Best Ideas fund, (Location 72)
It might surprise you, then, to be told that most of their investments lost money. (Location 78)
I have come to understand that if successful property investing is all about ‘location, location, location’, success in equity investing is all about ‘execution, execution, execution’. (Location 99)
My findings show that the key to successfully executing great ideas and making lots of money comes down to the actions you take after you have invested in an idea and find yourself losing or winning. (Location 121)
The chapters in this part deal with being in a situation where you have invested in a great idea and now find yourself losing money. (Location 124)
While both the Assassins and Hunters were masters at turning losing situations into winning ones, they adopted vastly different methods to get themselves out of a hole. (Location 135)
The only solution to a losing situation is to sell out or significantly increase your stake. (Location 387)
“[W]hat separates the winners from the losers? The answer is simple – the winners make small mistakes while the losers make big mistakes.”13 (Location 440)
But in well-chosen investments, this is a strategy that wins over time – you acquire more and more assets at cheaper and cheaper prices. When the price of the assets goes up above the average price you have spent, even if it is hardly motoring into new highs, you will be making money. (Location 880)
They generally found themselves buying when everyone else was selling, and this was an extension of that philosophy, another way of exploiting Mr Market when he was acting irrationally. (Location 886)
It burned into their minds the important fact that just because something is cheap does not mean you should buy it. (Location 900)
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They also grew unafraid to sell if it became clear they really had made a mistake. (Location 901)
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buying in at the greatest possible discount, something that is very hard (if not impossible) to do. (Location 908)
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You have to expect a share price to go against you in the near term and not panic when it does. (Location 916)
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He turned a loser into a winner. This is the type of investor I want on my team. (Location 945)
I do not intend to go into the detail of the Kelly Criterion as it is now famously called, but suffice to say this formula shows that you should (Location 972)
have an edge. (Location 973)
Warren Buffett is the most famous exponent of this approach. He invested 42% of Berkshire Hathaway in American Express in 1974 because he thought the odds were outrageously in his favour and he had an edge in his assessment of how that business would perform in the decades ahead. (Location 973)
If a stock you are invested in has fallen materially in price, but nothing else has changed – the investment thesis is still in tact – your odds will have improved significantly and you should materially increase your stake in that company. (Location 977)
If you are a Hunter, though, you choose not to control risk by diversification but by thoroughly understanding the risk and returns of a particular stock or handful of stocks. Your goal is to find companies that have an unbelievably attractive, (Location 984)
asymmetric payoff profile. (Location 985)
The fact that you are only investing in a few companies means that you have the opportunity to invest big on day one, and then follow up with large top-up investments should the share price fall. As Warren Buffett said in his annual letter (Location 986)
The Hunters often put 20% of their assets in a single stock, and had to be comfortable investing another 20% in that same stock when it was heading south. (Location 995)
Mohnish Prabai talks about having a crystal-clear exit plan before you ever think about buying a stock.29 I agree – but also advocate having a clear plan for topping up losers as well. (Location 1001)
The Rabbit invests his entire stake, $900, in one go and adopts a buy-and-hold approach. The Assassin also invests his entire stake of $900 in one go but will only keep holding it if it doesn’t hit the stop-loss set at 25% below his original purchase price. (Location 1009)
One powerful technique I found useful in persuading some of the investors to add to a losing position was to get them to look beyond their current position and at their broader portfolio. If the overall portfolio was making money I could say to them, “Look, you are in profit and can afford to add to the losing position – why not put some of that profit to work?” (Location 1108)
is a large (Location 1278)
All the successful investors I have managed made money because they won big in a few names, while ensuring the bad ideas did not materially hurt them. Having a process that prevents you winning (Location 1416)
And not all profits are equal. In the long term, investing in stocks is one of the best ways to make money – but while this is true as a whole, if you are buying individual shares it very much depends on the stocks you buy. (Location 1419)
In the introduction to this book I showed that on average only 49% of top investors’ ideas made money. (Location 1451)
Many studies have shown that momentum investing can be a winning strategy. Stock leadership does seem to persist long enough to exploit it – a greater fool will (almost) always buy at a higher price. (Location 1463)
Many legendary investors did not predict their biggest winners – and have admitted (Location 1482)
These are the investors whose performance lived up to the billing – or exceeded it. They did not get paralysed by unexpected losses or carried away with victories. (Location 1553)
Having entrusted you with their hard-earned money, they can get seriously annoyed when you persist in holding onto a stock that has made a nice profit. It gets even more awkward if that profit retraces its steps at some point. (Location 1559)
Don’t be fooled. In terms of hit rate, as a group they actually had a worse record than the average for my investors. Six out of ten ideas the Connoisseurs invested in lost money. (Location 1568)
They rode their winners far beyond most people’s comfort zone. (Location 1570)
The Connoisseurs’ approach was to identify companies with a view to holding them for ten or more years. They would buy businesses that they viewed as low ‘negative surprise’ companies. (Location 1573)
The way many Connoisseurs avoided being scared out of a position or being attracted away by another great investment was to take small profits as the stock kept going up rather than selling entirely out of the position having made 20% or 50%. (Location 1604)
Remember, despite their successful approach, only one-in-three of the Connoisseurs’ ideas made money. In other words, every Connoisseur was also an Assassin or a Hunter when it came to losses. (Location 1688)
thousands of other companies wanting to buy Amazon from him. Could you have resisted if someone offered you $10m or $100m for your company? Resisting temptation and staying invested in a great idea is critical. Had Jeff sold out earlier when he was building Amazon, we may never have heard about him today. (Location 1701)
The single highest-conviction stock of every manager taken together outperformed the market, as well as the other stocks in those managers’ portfolios, by approximately 1–14%. That is a staggering 4–16% a year. Over a ten-year time frame, that means these stocks could have outperformed the market by a phenomenal 48–341%! (Location 1738)
The managers’ top five stocks also outperformed the market, as well as the other stocks in those managers’ portfolios, significantly. (Location 1741)
The managers’ worst ideas – those stocks with the lowest weighting55 – performed significantly worse than the managers’ best ideas. (Location 1743)
This suggests that sipping some of those profits over time makes a lot of sense. While you stay invested and therefore have the potential to win big, you are mitigating the potential damage should the shares disappoint. (Location 1787)
My research showed that the best investors all benefited from holding a few massive winners. Strip out these big winners and their returns would be distinctly average. (Location 1802)
“[The] way to build long-term returns is through preservation of capital and home runs. Many managers, once they’re up 30 or 40 percent, will book their year … The way to attain truly superior long-term returns is to grind it out until you’re up 30 or 40 percent, and then if you have the convictions, go for a 100 percent year.” (Location 1808)
Most think they are just too smart and that they know best. They are overconfident in the same way all drivers think they are better than average. It’s their loss. (Location 1895)
Moreover, my research shows that your chances of success are less than 50%. With such odds, going all in makes no sense. (Location 1932)