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The Art of Execution: How the world's best investors get it wrong and still make millions
Over seven years, 45 of the world's top investors were given between $25 and $150m to invest by fund manager Lee Freeman-Shor. His instructions were simple. There was only one rule. They could only invest in their ten best ideas to make money.It seemed like a foolproof plan to make a lot of money. What could possibly go wrong? These were some of the greatest minds at work in the markets today - from top European hedge fund managers to Wall Street legends.But most of the investors' great ideas actually lost money. Shockingly, a toss of a coin would have been a better method of choosing whether or not to invest in a stock.Nevertheless, despite being wrong most of the time, many of these investors still ended up making a lot of money.How could they be wrong most of the time and still be profitable? The answer lay in their hidden habits of execution, which until now have only been guessed at from the outside world.This book lays bare those secret habits for the first time, explaining them with real-life data, case studies and stories taken from Freeman-Shor's unique position of managing these investors on a day-to-day basis.A riveting read for investors of every level, this book shows you exactly what to do and what not to do when your big idea is losing or winning - and demonstrates conclusively why the most important thing about investing is always the art of execution.
130 pages, Kindle Edition
First published September 14, 2015
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August 26, 2019
Best quotes:
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.
RABBITS do nothing when a position underperforms.
Too big to fail Like many managers, the Rabbits were less inclined to walk away from a large losing investment than a small losing investment.
This can be more of a problem if you have a smaller portfolio. The investors I worked with readily admitted that in their funds, some of which held up to 100 stocks, it was far easier to sell a losing position because it represented only 1% of the overall fund’s net asset value. Thus, if the stock was down 40%, it had only cost them 0.4%.
There are a few simple things they could have done to overcome their problems.
1. Always have a plan
When faced with a painful loss-making position, most people do nothing. They turn into a Rabbit and procrastinate, letting all their biases play havoc with their decision-making, hoping time will resolve their issues so they don’t have to. The best way round this is to draw up a plan of precisely what actions you will take when your investments don’t work. The Rabbits didn’t have one. You can.
2. Sell or buy more
The only solution to a losing situation is to sell out or significantly increase your stake. If a stock price is down after your investment, the market is telling you that you were wrong. If you really do believe you were right to invest in that company, then you were clearly wrong in the timing. The sooner you acknowledge you have made a mistake and take steps to deal with it, the better your odds of achieving a successful outcome.
“If I had a blank piece of paper and were looking to invest today, would I buy into that stock given what I now know?” If your answer to the question above is “No”, or “Maybe, but…” then you should sell.
“[E]very few months I checked the story just as if I were hearing it for the first time … [and I would] get out of situations where the fundamentals are worse and the price had increased … and into situations where the fundamentals are better but the price is down … a price stop is any opportunity to load up on bargains from among your worst performers … if you can’t convince yourself when I’m down 25% I’m a buyer then you’ll never make a decent profit in stocks.”9
Doing nothing when you are losing is never an option because if the stock price rises from here you should have put more money to work. If it falls further you should have cut your position.
Nowadays, I start to apply pressure on my managers when a stock is down over 20% to ensure action is taken before irreparable damage occurs.
3. Don’t go all in A corollary of the previous point is to never put yourself in a position where you find you are still convinced by your original investment idea but are not able to invest more money when the share price falls. That is poor money management. Keep some powder dry.
4. Don’t be hasty to jump in, do be hasty to jump out
Buying slowly over time (known as dollar or pound-cost-averaging),
6. Seek out opposition
What you should really do is to speak to someone with an opposing view. Ideally you should also sell out of the stock while you do that, so that you have removed the emotional attachment of a vested interest.
7. Be humble
You should expect your ideas to be wrong and invest with that in mind.
8. Keep quiet and carry on
Be careful who you talk to about your investments and how you talk about them. Some people have an almost religious zeal for shares they have bought, and like nothing better than sharing their views in public to as many people as possible. Unfortunately, this makes it impossible to walk away from an idea without looking like an idiot. It’s an unnecessary hindrance. The Rabbits might have been less likely to get stuck had they not boasted of anticipated returns.
9. Don’t underestimate the downside–adapt to it
The solution is simple: treat them as if they are options. Invest an amount you are willing to lose in the same way that you would pay a one-off lump sum (called a premium) to purchase a stock option.
10. Be open to different kinds of story Many studies have shown that stocks with the worst stories tend to produce the highest returns.
11. Get sick of sick notes
Unfortunately, large stock market returns are rare, even if you can hold your nerve and not sell out of one too soon. If you stick with a big loser and do nothing you are virtually guaranteed to be permanently destroying your wealth by creating a hole that is simply too deep to dig your way out of.
Assassins
1. Kill all losers at 20–33%
They therefore did not rely on themselves to pull the trigger. Thanks to a simple but sophisticated device, their weapons went off automatically at exactly the right time, taking out their targets without delay. This device is the humble stop-loss.
Most investors use ‘review’ prices instead–if one is hit, it forces a review of the holding to decide what to do.
So at what level do you set your stop-loss?
Assassins despatched their losers at slightly different predetermined points depending on their own experience and preferences: almost always somewhere between 20% and 33%
Don’t sell too soon It can be very tempting to take assassination to extremes and start cutting losses dead at 5, 10, 15%. Why not despatch the unhappy victims as soon as possible? It’s important to realise that the Assassins’ rules
HUNTERS buy more when a price falls
Let me stress at the outset that the Hunters, like all successful practitioners of what is called ‘dollar-cost averaging’, planned beforehand to buy more shares if a price fell. So they did not go all in on day one. Rather, they invested a lesser amount at the outset and kept some cash on the side–waiting for an opportunity to buy more at a lower price in the future.
The key reason for the Hunters’ approach lay in their invariably contrarian style. They were value investors. 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.
Hunters double or treble their holdings at the bottom on several occasions and then enjoy the rewards as the shares recovered. It was clear that such moments gave the Hunters a real adrenaline kick: apparently there is no better feeling than snatching victory from the jaws of defeat.
Be under no illusions: being a Hunter requires patience and discipline. You have to expect a share price to go against you in the near term and not panic when it does. You have to be prepared to make money from stocks that may never recapture the original price you paid for your first lot of shares. If you know your personality is one which demands instant gratification, this approach is not for you.
“I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.”–Peter Lynch
It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favourite rather than simply adding that money to his top choices–the businesses he understands best and that present the least risk, along with the greatest profit potential.
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.
The Hunter adopts the three-bites-at-the-cherry approach to investing, which means that he initially invests a third of the total amount he is willing to invest in the stock. If the price falls beyond a certain threshold, he invests another third. The Rabbit invests his entire stake, $900, in one go and adopts a buy-and-hold approach.
Michael Lewis put it in Moneyball, most failing strategies fail because they all have one thing in common; they are designed with fear of public humiliation in mind: “Every change he made was aimed more at preventing embarrassment than at achieving success. To reduce his strikeouts he shortened his swing, and traded the possibility of hitting a home run for a greater likelihood of simply putting the ball in play.”
I find it bizarre that top athletes and sportsmen and women have coaches but the majority of investment professionals do not. How can they expect to improve their game if they do not have constructive feedback?
RAIDERS
are investors who like nothing better than taking a profit as soon as practical.
I noticed the rather distressing fact that one of my investors had an incredible success rate–almost 70% of his ideas were correct, which is truly phenomenal–but he hadn’t made me any money.
By monitoring a stock they are invested in several times a day, they notice the share price moves up and down quite a bit. The price seems volatile.
Connoisseur/Знаток
They treated every investment like a vintage of wine: if it was off, they got rid of it immediately, but if it was good they knew that it would only get better with age.
Taking small profits along the journey like a Connoisseur allows us to get instant gratification without ruining our long-term wealth aspirations. This ‘trick’ is one that I have seen in action and which allowed my best investors to stay in absolutely phenomenal winners.
1. Find unsurprising companies
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.
2. Look for big upside potential
Where many investors go wrong is in investing in too many ideas with limited upside potential (of, say, 10–30%).
3. Invest big–and focused
When the Connoisseurs were very confident in an idea, they built up big positions. They could end up with 50% of their total assets invested in just two stocks. It was these stocks that made them so successful.
This is one of the reasons that I allow each of my current investors to invest up to 25% of the money I give them in a single idea.
No use having a small investment in a big winner; you have to have a large position size to generate big returns.
4. Don’t be scared
5. Make sure you have a pillow
Meeting some of my Connoisseurs could be very, very boring because nothing ever changed. They would talk about the same stocks they had been invested in for the past five years or longer. On the days I had a meeting scheduled with a Connoisseur, I sometimes struggled to get out of bed.
My investor��s secret was to take small profits along the way to ensure he stayed invested, a process he would describe as trimming his winners. Like going for a haircut, the idea was to take a little off–not the whole lot. This process meant he didn’t quite make the full 231% return.
Why many fund managers are doomed to fail
Unfortunately, many fund managers find it almost impossible to be Connoisseurs.
Firstly, many professional investors over-diversify when they invest because they are managing their career risk. Most are judged by their bosses and employers based on how they perform against an index or peer group over a short period of time. This militates against concentrating investments in potential long-term winners.
Secondly, regulators prohibit professional fund managers from holding large positions in just a handful of their very best money-making ideas.
Academic support for ‘best ideas’ investing
There is strong academic evidence for why investing in just your highest-conviction ideas makes sense.
• The managers’ top five stocks also outperformed the market, as well as the other stocks in those managers’ portfolios, significantly.
• The managers’ worst ideas–those stocks with the lowest weighting–performed significantly worse than the managers’ best ideas.
This lends support to the notion that success is not determined by luckily investing in the hot stock at any one time. Rather, it is about investing in your best idea.
This research paper shows that professional investors do have skill in picking stocks, especially when it relates to their best ideas. It seems that over-diversification is another thing to blame for poor performance by professional investors.
Are you ready to be a Connoisseur?
It takes a lot of nerves and patience to be a Connoisseur. It’s something everyone should aspire to–but few find easy. Hopefully this chapter has inspired you to join their ranks. 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.
The Winner’s Checklist: The five winning habits of investment titans
1. Best ideas only Invest in just a handful of your very best ideas. My findings show that having one or two big winners is essential for success–the 80/20 rule (the Pareto principle) is true.
2. Position size matters Invest a large amount of money in each idea, but not so much that one decision determines your fate. Act like a successful gunslinger, not an arrogant gunslinger. The arrogant gunslinger decides to load only one bullet into the chamber of his gun because he is so confident in his ability that he believes he will not need the other five bullets. As he stares down from heaven at his blood-soaked corpse ten minutes later, he realises that the reason successful gunslingers survive to become legends is because they always have fully loaded chambers. They know that, every now and then, they need more than one bullet. I often refer to the process of adding money to a losing position as firing another bullet. Not having all your capital tied up in one idea means you get multiple opportunities to achieve success. However, do not invest in too many ideas and over-diversify. Rather, be prepared to invest big–just don’t go all in on day one.
3. Be greedy when winning Run your winners. You need to embrace the possibility of winning big. Embrace the right tail, the statistical long shots, of the distribution curve. Stop trying to make a quick 10 or 20%. Give your investments the possibility of growing into ‘ten baggers’.
4. Materially adapt when you are losing Either add meaningfully to an existing investment or sell out. Both give you the possibility of changing the ultimate outcome. You can turn a loser into a winner. Expect to find yourself in a losing situation, have a plan to materially adapt, and stick to
5. Only invest in liquid stocks
Make sure any publicly listed investment is liquid enough to enable you to execute your idea. There is nothing worse than knowing what to do, wanting to do it, but being unable to do it.
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.
RABBITS do nothing when a position underperforms.
Too big to fail Like many managers, the Rabbits were less inclined to walk away from a large losing investment than a small losing investment.
This can be more of a problem if you have a smaller portfolio. The investors I worked with readily admitted that in their funds, some of which held up to 100 stocks, it was far easier to sell a losing position because it represented only 1% of the overall fund’s net asset value. Thus, if the stock was down 40%, it had only cost them 0.4%.
There are a few simple things they could have done to overcome their problems.
1. Always have a plan
When faced with a painful loss-making position, most people do nothing. They turn into a Rabbit and procrastinate, letting all their biases play havoc with their decision-making, hoping time will resolve their issues so they don’t have to. The best way round this is to draw up a plan of precisely what actions you will take when your investments don’t work. The Rabbits didn’t have one. You can.
2. Sell or buy more
The only solution to a losing situation is to sell out or significantly increase your stake. If a stock price is down after your investment, the market is telling you that you were wrong. If you really do believe you were right to invest in that company, then you were clearly wrong in the timing. The sooner you acknowledge you have made a mistake and take steps to deal with it, the better your odds of achieving a successful outcome.
“If I had a blank piece of paper and were looking to invest today, would I buy into that stock given what I now know?” If your answer to the question above is “No”, or “Maybe, but…” then you should sell.
“[E]very few months I checked the story just as if I were hearing it for the first time … [and I would] get out of situations where the fundamentals are worse and the price had increased … and into situations where the fundamentals are better but the price is down … a price stop is any opportunity to load up on bargains from among your worst performers … if you can’t convince yourself when I’m down 25% I’m a buyer then you’ll never make a decent profit in stocks.”9
Doing nothing when you are losing is never an option because if the stock price rises from here you should have put more money to work. If it falls further you should have cut your position.
Nowadays, I start to apply pressure on my managers when a stock is down over 20% to ensure action is taken before irreparable damage occurs.
3. Don’t go all in A corollary of the previous point is to never put yourself in a position where you find you are still convinced by your original investment idea but are not able to invest more money when the share price falls. That is poor money management. Keep some powder dry.
4. Don’t be hasty to jump in, do be hasty to jump out
Buying slowly over time (known as dollar or pound-cost-averaging),
6. Seek out opposition
What you should really do is to speak to someone with an opposing view. Ideally you should also sell out of the stock while you do that, so that you have removed the emotional attachment of a vested interest.
7. Be humble
You should expect your ideas to be wrong and invest with that in mind.
8. Keep quiet and carry on
Be careful who you talk to about your investments and how you talk about them. Some people have an almost religious zeal for shares they have bought, and like nothing better than sharing their views in public to as many people as possible. Unfortunately, this makes it impossible to walk away from an idea without looking like an idiot. It’s an unnecessary hindrance. The Rabbits might have been less likely to get stuck had they not boasted of anticipated returns.
9. Don’t underestimate the downside–adapt to it
The solution is simple: treat them as if they are options. Invest an amount you are willing to lose in the same way that you would pay a one-off lump sum (called a premium) to purchase a stock option.
10. Be open to different kinds of story Many studies have shown that stocks with the worst stories tend to produce the highest returns.
11. Get sick of sick notes
Unfortunately, large stock market returns are rare, even if you can hold your nerve and not sell out of one too soon. If you stick with a big loser and do nothing you are virtually guaranteed to be permanently destroying your wealth by creating a hole that is simply too deep to dig your way out of.
Assassins
1. Kill all losers at 20–33%
They therefore did not rely on themselves to pull the trigger. Thanks to a simple but sophisticated device, their weapons went off automatically at exactly the right time, taking out their targets without delay. This device is the humble stop-loss.
Most investors use ‘review’ prices instead–if one is hit, it forces a review of the holding to decide what to do.
So at what level do you set your stop-loss?
Assassins despatched their losers at slightly different predetermined points depending on their own experience and preferences: almost always somewhere between 20% and 33%
Don’t sell too soon It can be very tempting to take assassination to extremes and start cutting losses dead at 5, 10, 15%. Why not despatch the unhappy victims as soon as possible? It’s important to realise that the Assassins’ rules
HUNTERS buy more when a price falls
Let me stress at the outset that the Hunters, like all successful practitioners of what is called ‘dollar-cost averaging’, planned beforehand to buy more shares if a price fell. So they did not go all in on day one. Rather, they invested a lesser amount at the outset and kept some cash on the side–waiting for an opportunity to buy more at a lower price in the future.
The key reason for the Hunters’ approach lay in their invariably contrarian style. They were value investors. 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.
Hunters double or treble their holdings at the bottom on several occasions and then enjoy the rewards as the shares recovered. It was clear that such moments gave the Hunters a real adrenaline kick: apparently there is no better feeling than snatching victory from the jaws of defeat.
Be under no illusions: being a Hunter requires patience and discipline. You have to expect a share price to go against you in the near term and not panic when it does. You have to be prepared to make money from stocks that may never recapture the original price you paid for your first lot of shares. If you know your personality is one which demands instant gratification, this approach is not for you.
“I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.”–Peter Lynch
It is apt simply to hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favourite rather than simply adding that money to his top choices–the businesses he understands best and that present the least risk, along with the greatest profit potential.
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.
The Hunter adopts the three-bites-at-the-cherry approach to investing, which means that he initially invests a third of the total amount he is willing to invest in the stock. If the price falls beyond a certain threshold, he invests another third. The Rabbit invests his entire stake, $900, in one go and adopts a buy-and-hold approach.
Michael Lewis put it in Moneyball, most failing strategies fail because they all have one thing in common; they are designed with fear of public humiliation in mind: “Every change he made was aimed more at preventing embarrassment than at achieving success. To reduce his strikeouts he shortened his swing, and traded the possibility of hitting a home run for a greater likelihood of simply putting the ball in play.”
I find it bizarre that top athletes and sportsmen and women have coaches but the majority of investment professionals do not. How can they expect to improve their game if they do not have constructive feedback?
RAIDERS
are investors who like nothing better than taking a profit as soon as practical.
I noticed the rather distressing fact that one of my investors had an incredible success rate–almost 70% of his ideas were correct, which is truly phenomenal–but he hadn’t made me any money.
By monitoring a stock they are invested in several times a day, they notice the share price moves up and down quite a bit. The price seems volatile.
Connoisseur/Знаток
They treated every investment like a vintage of wine: if it was off, they got rid of it immediately, but if it was good they knew that it would only get better with age.
Taking small profits along the journey like a Connoisseur allows us to get instant gratification without ruining our long-term wealth aspirations. This ‘trick’ is one that I have seen in action and which allowed my best investors to stay in absolutely phenomenal winners.
1. Find unsurprising companies
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.
2. Look for big upside potential
Where many investors go wrong is in investing in too many ideas with limited upside potential (of, say, 10–30%).
3. Invest big–and focused
When the Connoisseurs were very confident in an idea, they built up big positions. They could end up with 50% of their total assets invested in just two stocks. It was these stocks that made them so successful.
This is one of the reasons that I allow each of my current investors to invest up to 25% of the money I give them in a single idea.
No use having a small investment in a big winner; you have to have a large position size to generate big returns.
4. Don’t be scared
5. Make sure you have a pillow
Meeting some of my Connoisseurs could be very, very boring because nothing ever changed. They would talk about the same stocks they had been invested in for the past five years or longer. On the days I had a meeting scheduled with a Connoisseur, I sometimes struggled to get out of bed.
My investor��s secret was to take small profits along the way to ensure he stayed invested, a process he would describe as trimming his winners. Like going for a haircut, the idea was to take a little off–not the whole lot. This process meant he didn’t quite make the full 231% return.
Why many fund managers are doomed to fail
Unfortunately, many fund managers find it almost impossible to be Connoisseurs.
Firstly, many professional investors over-diversify when they invest because they are managing their career risk. Most are judged by their bosses and employers based on how they perform against an index or peer group over a short period of time. This militates against concentrating investments in potential long-term winners.
Secondly, regulators prohibit professional fund managers from holding large positions in just a handful of their very best money-making ideas.
Academic support for ‘best ideas’ investing
There is strong academic evidence for why investing in just your highest-conviction ideas makes sense.
• The managers’ top five stocks also outperformed the market, as well as the other stocks in those managers’ portfolios, significantly.
• The managers’ worst ideas–those stocks with the lowest weighting–performed significantly worse than the managers’ best ideas.
This lends support to the notion that success is not determined by luckily investing in the hot stock at any one time. Rather, it is about investing in your best idea.
This research paper shows that professional investors do have skill in picking stocks, especially when it relates to their best ideas. It seems that over-diversification is another thing to blame for poor performance by professional investors.
Are you ready to be a Connoisseur?
It takes a lot of nerves and patience to be a Connoisseur. It’s something everyone should aspire to–but few find easy. Hopefully this chapter has inspired you to join their ranks. 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.
The Winner’s Checklist: The five winning habits of investment titans
1. Best ideas only Invest in just a handful of your very best ideas. My findings show that having one or two big winners is essential for success–the 80/20 rule (the Pareto principle) is true.
2. Position size matters Invest a large amount of money in each idea, but not so much that one decision determines your fate. Act like a successful gunslinger, not an arrogant gunslinger. The arrogant gunslinger decides to load only one bullet into the chamber of his gun because he is so confident in his ability that he believes he will not need the other five bullets. As he stares down from heaven at his blood-soaked corpse ten minutes later, he realises that the reason successful gunslingers survive to become legends is because they always have fully loaded chambers. They know that, every now and then, they need more than one bullet. I often refer to the process of adding money to a losing position as firing another bullet. Not having all your capital tied up in one idea means you get multiple opportunities to achieve success. However, do not invest in too many ideas and over-diversify. Rather, be prepared to invest big–just don’t go all in on day one.
3. Be greedy when winning Run your winners. You need to embrace the possibility of winning big. Embrace the right tail, the statistical long shots, of the distribution curve. Stop trying to make a quick 10 or 20%. Give your investments the possibility of growing into ‘ten baggers’.
4. Materially adapt when you are losing Either add meaningfully to an existing investment or sell out. Both give you the possibility of changing the ultimate outcome. You can turn a loser into a winner. Expect to find yourself in a losing situation, have a plan to materially adapt, and stick to
5. Only invest in liquid stocks
Make sure any publicly listed investment is liquid enough to enable you to execute your idea. There is nothing worse than knowing what to do, wanting to do it, but being unable to do it.
This entire review has been hidden because of spoilers.
December 24, 2020
1. USE MOVING STOP LOSSES to preserve capital (minimize big losses) while embracing the right tail (riding winners) - PM's won big in a few names while ensuring the bad ideas did not materially hurt them
2. invest big in a few positions; don't over diversify- build position in each idea over time, saving ammo to lower DCA
3. materially adapt - add to position when losing or sell out
4. don't be a raider + rabbit - If you combine the urge to sell winners too soon with the reluctance to sell losers, the net result is losing a lot more than you win: you have effectively got an investment style that combines significant downside risk with insignificant upside potential.
5. liquidity
2. invest big in a few positions; don't over diversify- build position in each idea over time, saving ammo to lower DCA
3. materially adapt - add to position when losing or sell out
4. don't be a raider + rabbit - If you combine the urge to sell winners too soon with the reluctance to sell losers, the net result is losing a lot more than you win: you have effectively got an investment style that combines significant downside risk with insignificant upside potential.
5. liquidity
May 9, 2017
Lee Freeman-Shor is a fund-of-funds manager at Old Mutual Global Investors, one of the many fund partners available on our fund supermarket. His book isn’t really about investing, instead it’s more of an exploration of human behaviour under different types of stress, and this is what makes the book fascinating.
Freeman-Shor splits his investors into different ‘tribes’ to describe their behaviour. He finds that the same investors make the same mistakes, or do the right things, time and time again. What really matters, the author concludes, is how trades are executed rather than which company is chosen.
The most successful investors, Freeman-Shor argues, understand the influence of human behaviour on their work. The simple stop-loss gets top billing as a very effective way of cutting losses before they become too big to recover from (this tribe is named the ‘Assassins’).
This is where Freeman-Shor excels himself, delving into the science of human behaviour and a suite of biases that affect our decision-making.
A lot of us will recognise these biases in our own lives. Framing bias or anchoring heuristic? These scientific terms mask behavioural traits that we can all relate to, and indeed Deal or No Deal is cited as an example of how our decisions are affected by other decisions we have recently made (recency bias).
Our tendency to hold on to investments when they are falling and to sell when winning is completely irrational. These tendencies are explored and real-life examples as to how the best investors reverse these tendencies – and how the not so good ones get the sack.
Freeman-Shor also touches on how the culture of a fund house can adversely affect its fund managers. If annual-bonuses purely reflect performance a fund manager might be tempted to realise gains of 30% - a decent return – when in fact holding on to the stock could have created a ‘ten-bagger’.
This is the key for successful investing – if you are only winning half the time, when you do win you need to win big. And to win big you need to be brave, to have a large position in a winner.
Freeman-Shor makes the point that a lot of funds are restricted in the position they can hold in one fund – usually no more than 10% in one position.
This is meant to reduce risk, but really all that is happening is you are swapping one kind of risk for another. You’ll see the risk warnings on this site for funds that have a concentrated portfolio, Lindsell Train UK Equity is a favourite example – note how the top ten holdings are all going to add up to far more than 50% of the total holdings; the upside being that if these funds rise in value, it has a bigger effect on the overall performance.
The risk is meant to be that should the shares fall, this will have a disproportionally negative effect on the value of the fund. But the risk of having too small a share in a company whose share price is rising is just as relevant.
This book is written to appeal to all kinds of investors, and is bound to appeal to both the author’s peers and to the inexperienced investor.
Freeman-Shor splits his investors into different ‘tribes’ to describe their behaviour. He finds that the same investors make the same mistakes, or do the right things, time and time again. What really matters, the author concludes, is how trades are executed rather than which company is chosen.
The most successful investors, Freeman-Shor argues, understand the influence of human behaviour on their work. The simple stop-loss gets top billing as a very effective way of cutting losses before they become too big to recover from (this tribe is named the ‘Assassins’).
This is where Freeman-Shor excels himself, delving into the science of human behaviour and a suite of biases that affect our decision-making.
A lot of us will recognise these biases in our own lives. Framing bias or anchoring heuristic? These scientific terms mask behavioural traits that we can all relate to, and indeed Deal or No Deal is cited as an example of how our decisions are affected by other decisions we have recently made (recency bias).
Our tendency to hold on to investments when they are falling and to sell when winning is completely irrational. These tendencies are explored and real-life examples as to how the best investors reverse these tendencies – and how the not so good ones get the sack.
Freeman-Shor also touches on how the culture of a fund house can adversely affect its fund managers. If annual-bonuses purely reflect performance a fund manager might be tempted to realise gains of 30% - a decent return – when in fact holding on to the stock could have created a ‘ten-bagger’.
This is the key for successful investing – if you are only winning half the time, when you do win you need to win big. And to win big you need to be brave, to have a large position in a winner.
Freeman-Shor makes the point that a lot of funds are restricted in the position they can hold in one fund – usually no more than 10% in one position.
This is meant to reduce risk, but really all that is happening is you are swapping one kind of risk for another. You’ll see the risk warnings on this site for funds that have a concentrated portfolio, Lindsell Train UK Equity is a favourite example – note how the top ten holdings are all going to add up to far more than 50% of the total holdings; the upside being that if these funds rise in value, it has a bigger effect on the overall performance.
The risk is meant to be that should the shares fall, this will have a disproportionally negative effect on the value of the fund. But the risk of having too small a share in a company whose share price is rising is just as relevant.
This book is written to appeal to all kinds of investors, and is bound to appeal to both the author’s peers and to the inexperienced investor.
August 21, 2018
I’m a terrible snob when it comes to investment literature. Books written for private investors rarely interest me. This is different. This might be the most important book on investments that a private investor can read – if he can gather the discipline to follow the advice. It might actually save quite a few professional portfolio managers’ bacon as well.
Lee Freeman-Shor is the PM of Old Mutual’s Best Ideas Fund. The fund’s strategy is to select the 45 best investors they can find and let them invest in 10 stocks each. The aggregate of the underlying positions makes up the fund. The interesting thing from the perspective of the reader of this book is that this has given the author an unprecedented real time access to analyze and learn from the best during a long stretch of years. It turns out that less than half of the PMs’ positions were profitable. Some PMs lost money on as much as 2/3rds of their positions. And still, on average these elite investors generated good or even great overall investment results. How this could be is the content of this book. The short answer is so called money management.
The author first analyzed how the PMs acted when it came to their loosing positions, dividing them into three groups according to their behaviour. The Rabbits that didn’t handle loosing positions well and the Assassins and the Hunters who had two different profitable methods to turn losses around. Then Freeman-Lee looked to the opposite – how the PMs handle winning positions. They are now sorted into the unsuccessful Raiders and the top performing Connoisseurs. For each investor type the author analyzes their behavioural biases and discusses what could be learnt from what they are doing wrong and what they are doing right. A bit like The Little Book of Behavioural Investing by James Montier, but for the private investor and with a money management touch.
The thing with losses is that they become disproportionally harder to come back from the larger they get. If a stock goes down 25 percent it has to go up 33 percent to get even. If it goes down 50 percent it has to go up 100 percent and if it goes down 75 percent it has to go up 300 percent. The one thing you cannot do when experiencing losses is nothing. This is what the Rabbits did and they ended up in rabbit holes that were so deep that they couldn’t come back from the losses. Two things work – either you sell or you buy. The Assassins used stop-losses that gave them a fair amount of small losses but never the big ones that were impossible to turn around to profits. This is the typical trend following investor. The Hunters instead waited a little longer and then they doubled down by adding to the position. By doing this they lowered their average purchase price to something that was possible to make a profit from when the stock turned up again. This is the typical value investor.
The loosing habit in handling profits was taking profits too early. High returns are built “through preservation of capital and home runs” as Stanley Druckenmiller put it. A successful portfolio’s return is disproportionally created by a few very successful holdings. By selling as soon as a nice profit was at hand the Raiders effectively closed down their chance of home runs. Don’t.
This is a book written for private investors so it is very simple. Take away the case studies and use normal size font and it could be 70 pages. For its stated audience it is great. There is a fine balance in writing about a specialist area to the broader public. The good author writes for an intelligent person who doesn’t know much about the subject. The bad treats his readers like children. Freeman- Shor is in the good camp. I also like that he, in contrast to trading literature, gives a fuller range of money management options suited to both trend following investors and value investors.
The professional investor will not be surprised by anything in this book. Yet his performance could be vastly improved if he followed the advice. Simple but not easy.
Lee Freeman-Shor is the PM of Old Mutual’s Best Ideas Fund. The fund’s strategy is to select the 45 best investors they can find and let them invest in 10 stocks each. The aggregate of the underlying positions makes up the fund. The interesting thing from the perspective of the reader of this book is that this has given the author an unprecedented real time access to analyze and learn from the best during a long stretch of years. It turns out that less than half of the PMs’ positions were profitable. Some PMs lost money on as much as 2/3rds of their positions. And still, on average these elite investors generated good or even great overall investment results. How this could be is the content of this book. The short answer is so called money management.
The author first analyzed how the PMs acted when it came to their loosing positions, dividing them into three groups according to their behaviour. The Rabbits that didn’t handle loosing positions well and the Assassins and the Hunters who had two different profitable methods to turn losses around. Then Freeman-Lee looked to the opposite – how the PMs handle winning positions. They are now sorted into the unsuccessful Raiders and the top performing Connoisseurs. For each investor type the author analyzes their behavioural biases and discusses what could be learnt from what they are doing wrong and what they are doing right. A bit like The Little Book of Behavioural Investing by James Montier, but for the private investor and with a money management touch.
The thing with losses is that they become disproportionally harder to come back from the larger they get. If a stock goes down 25 percent it has to go up 33 percent to get even. If it goes down 50 percent it has to go up 100 percent and if it goes down 75 percent it has to go up 300 percent. The one thing you cannot do when experiencing losses is nothing. This is what the Rabbits did and they ended up in rabbit holes that were so deep that they couldn’t come back from the losses. Two things work – either you sell or you buy. The Assassins used stop-losses that gave them a fair amount of small losses but never the big ones that were impossible to turn around to profits. This is the typical trend following investor. The Hunters instead waited a little longer and then they doubled down by adding to the position. By doing this they lowered their average purchase price to something that was possible to make a profit from when the stock turned up again. This is the typical value investor.
The loosing habit in handling profits was taking profits too early. High returns are built “through preservation of capital and home runs” as Stanley Druckenmiller put it. A successful portfolio’s return is disproportionally created by a few very successful holdings. By selling as soon as a nice profit was at hand the Raiders effectively closed down their chance of home runs. Don’t.
This is a book written for private investors so it is very simple. Take away the case studies and use normal size font and it could be 70 pages. For its stated audience it is great. There is a fine balance in writing about a specialist area to the broader public. The good author writes for an intelligent person who doesn’t know much about the subject. The bad treats his readers like children. Freeman- Shor is in the good camp. I also like that he, in contrast to trading literature, gives a fuller range of money management options suited to both trend following investors and value investors.
The professional investor will not be surprised by anything in this book. Yet his performance could be vastly improved if he followed the advice. Simple but not easy.
January 10, 2018
Yet another investment book with tons of quotes from investment biggies and human psychology. Easily avoidable.
July 31, 2019
In a year of reading investment books, this is a standout. Brief and clear Lee Freeman-Shor does not waste your time with excessive anecdotes or digressions. The style is direct and the information included is humbly stated and well supported by data and case studies.
September 17, 2018
This was one of the aha moments for me, since I heard it for the first time -
"
And crowds are often surprisingly wise - the market can be right even when everyone who makes it up is individually wrong.
In 1987 Jack Treynor presented 56 of his students with a jar full of jelly beans and asked them a simple question. How many jelly beans were in the jar? There were 850, but not one student got it right - hardly surprising.
What is more surprising is that despite the guessed varying massively from one student to the next, the average number taken among all those wrong numbers was only 2.5% off the actual number of 850. Only one student guessed a number closer to the actual number than the average.
"
My other take away from the book is to stay away from investors, as long as possible :D
"
And crowds are often surprisingly wise - the market can be right even when everyone who makes it up is individually wrong.
In 1987 Jack Treynor presented 56 of his students with a jar full of jelly beans and asked them a simple question. How many jelly beans were in the jar? There were 850, but not one student got it right - hardly surprising.
What is more surprising is that despite the guessed varying massively from one student to the next, the average number taken among all those wrong numbers was only 2.5% off the actual number of 850. Only one student guessed a number closer to the actual number than the average.
"
My other take away from the book is to stay away from investors, as long as possible :D
February 25, 2024
Would’ve liked a little more of an interrogation of why the rabbits and other poor investors managed to fool him/others into giving them money in the first place—apparently their approach works for at least a while!
Mostly, while this had some useful takeaways, it was about 20x longer than it had to be. The case studies were useless, the repetitiveness became a chore.
Mostly, while this had some useful takeaways, it was about 20x longer than it had to be. The case studies were useless, the repetitiveness became a chore.
May 22, 2022
Interesting, forces to confront behavioral bias, but not a magic recipe (which he seems to claim he has...)
July 8, 2023
You can be a great investor but a terrible money manager since the former is a skill issue while the latter is a behavioral one. This book is written to help you become a better money manager along one of those behavioral axes -- one that requires you to think about when to enter and exit a trade. It does a tremendous job at this, hence four solid stars. I wish the book expanded upon the behavioral biases associated with(in) portfolio allocation and investor relations. Nevertheless, you do get funny tidbits of Freeman-Shor either pestering his money managers into action on a losing trade or asking why they didn't milk out their winners on the way up.
June 16, 2021
This book is frankly kind of a mess. It's not well written, but that can be forgiven as long as the ideas are valuable. Sadly, they're not.
The author argues that some strategies are good, and other strategies are bad. The evidence provided for these broad claims are examples where stocks are purchased for one price, and later sold at another. Then the author concludes that because the stock went up a lot holding on to the stock must have been justified, and in other cases where the stock goes down a lot the author says the investor made a mistake by not selling earlier. Not exactly persuasive.
Then, in later chapters he advocates buying and holding your best ideas for years without even looking at the stock price, thereby making it easy to ride out 50% drawdowns. Except the author spent half the book arguing that sitting on losses is for losers ("rabbits" in his terminology).
The arguments and ideas contained in this book are entirely contradictory, and the truths in this book are really basic. Like it's good to have a plan before you buy something. Yeah, no kidding.
The author argues that some great investors got great returns by having 50% of their assets in a single stock. But does the author give any evidence the risk-adjusted return of this kind of concentration is good? Of course not. Survivorship bias? Not mentioned anywhere.
Despite the repeated calls to invest more in your best ideas and less in your 10th idea, the author has a fund where 45 investors invest in their best 10 ideas each. That's 450 stocks. Having this many investors involved in the decision making guarantees absolutely mediocre returns, especially after fees. Who in their right mind thinks it's a good idea to manage money this way?
The author notes, correctly, that there is no such thing as "paper" losses or profit. You just exchange one asset (dollars, euros) for another (equities, options). The liquidation value is what your account is worth. But almost the entire book is about responding to changes in share prices. Whether you should sell/buy when a stock goes up/down 20%/40%. But this entire way of thinking is invalid. You buy/sell based on expected value.
The author makes this mistake again and again. It's unbelievable. When a stock goes down 30% you should buy more or sell, the author says. Well, do you? Did the entire index also go down? Did the company issue a profit warning? Are regulators smelling blood? Doubling down or liquidating shouldn't be a dumb algorithm.
The book presumes the investing universe consists of only European stocks, and you can only go long. Nothing about hedging. Nothing about risk management. Nothing about trading around a volatile position. Nothing about macro conditions. Good execution must take these things into account.
The author might be a good investor but he can't write. He's not a lucid thinker. Skip this one.
The author argues that some strategies are good, and other strategies are bad. The evidence provided for these broad claims are examples where stocks are purchased for one price, and later sold at another. Then the author concludes that because the stock went up a lot holding on to the stock must have been justified, and in other cases where the stock goes down a lot the author says the investor made a mistake by not selling earlier. Not exactly persuasive.
Then, in later chapters he advocates buying and holding your best ideas for years without even looking at the stock price, thereby making it easy to ride out 50% drawdowns. Except the author spent half the book arguing that sitting on losses is for losers ("rabbits" in his terminology).
The arguments and ideas contained in this book are entirely contradictory, and the truths in this book are really basic. Like it's good to have a plan before you buy something. Yeah, no kidding.
The author argues that some great investors got great returns by having 50% of their assets in a single stock. But does the author give any evidence the risk-adjusted return of this kind of concentration is good? Of course not. Survivorship bias? Not mentioned anywhere.
Despite the repeated calls to invest more in your best ideas and less in your 10th idea, the author has a fund where 45 investors invest in their best 10 ideas each. That's 450 stocks. Having this many investors involved in the decision making guarantees absolutely mediocre returns, especially after fees. Who in their right mind thinks it's a good idea to manage money this way?
The author notes, correctly, that there is no such thing as "paper" losses or profit. You just exchange one asset (dollars, euros) for another (equities, options). The liquidation value is what your account is worth. But almost the entire book is about responding to changes in share prices. Whether you should sell/buy when a stock goes up/down 20%/40%. But this entire way of thinking is invalid. You buy/sell based on expected value.
The author makes this mistake again and again. It's unbelievable. When a stock goes down 30% you should buy more or sell, the author says. Well, do you? Did the entire index also go down? Did the company issue a profit warning? Are regulators smelling blood? Doubling down or liquidating shouldn't be a dumb algorithm.
The book presumes the investing universe consists of only European stocks, and you can only go long. Nothing about hedging. Nothing about risk management. Nothing about trading around a volatile position. Nothing about macro conditions. Good execution must take these things into account.
The author might be a good investor but he can't write. He's not a lucid thinker. Skip this one.
December 19, 2023
Easy to digest but lots to think about for investors of all types. I find myself being a rabbit a lot….and every time I look at the stats, it gives me a hard jab and prompts me to look at my portfolio and want to do some serious grooming. Good for re-reads because some books are just great practical guides to keep close. This is one of those classics.
October 20, 2018
買入前計畫對策，賣出像買入一樣分批average
其他胡說：不diversify； 賺錢時稱為行家 虧損時叫刺客，不成立
其他胡說：不diversify； 賺錢時稱為行家 虧損時叫刺客，不成立
This entire review has been hidden because of spoilers.
June 25, 2020
I’ve got some powerful ideas from this book and acted on it. You lose on a few investments and still you make money, how is that possible ? This book covers some interesting ideas.
November 7, 2021
Nej hörni, den här var inte så jättebra.
En stor del av boken glorifierade den gamla klyschan om att "ride your winners, and cut your losses short". Klyschor brukar ofta ha sanning i sig, och så även denna. Men man måste utveckla konceptet. Det omvända -- "double down on your losers, and take outsized profits quickly" -- är en lika bra devis. Det bästa är naturligtvis att kombinera de två, och applicera dem så som situationen tarvar.
Själv skulle jag påstå att den bästa versionen av den intill död medelst leda upprepade klyschan ovan, skulle vara: "ride your winners, double down on your losses". (Detta gäller förstås bara långsiktigt investeringar i bra företag, och endast om den ursprungliga investeringstesen kvarstår oförändrad (eller förbättrad.)) Den vanliga varianten av nyss parafraserade klyscha, må vara en bra för spekulanter utan spelidé, eller de med spelberoende-tendenser, men för de som faktiskt har en aning om vad de gör, är det ungefär lika meningsfullt som innehållslösa motivationscitat.
Skulle även säga att den enskilde svenske investeraren med ett KF eller ISK bör sälja långt oftare än sin amerikanska motpart, då den förstnämnde kan dra fördel av sin skattebefrielse och således utnyttja Herr Marknads labilitet utan några transaktionskostnader att tala om.
Ett annat problem är att författaren, av exemplen att döma, ej heller verkar förstå konceptet annualiserad avkastning särskilt väl: i något exempel -- tror Swedish Match eller Novo Nordisk -- så pratar han om en investerare/trader som 2009 eller däromkring tjänade > 20 % på några måndaer, och (rimligt nog) tog sin vinst. Men, säger författaren, hade han hållit investeringen tills nu (2015) hade han tjänat 70 %! (Siffrorna är mellan tumme-pekfinger.) Ja, det må va hänt, men det förstnämnda är en långt mycket bättre avkastning... Detta misstag görs genomgående i bokens exempel.
För den högintresserade läsaren skulle jag nog ändå rekommendera den, då den ändå berör ett viktigt område, och man faktiskt får ett antal viktiga insikter (inte minst hur viktigt det är att double down).
En stor del av boken glorifierade den gamla klyschan om att "ride your winners, and cut your losses short". Klyschor brukar ofta ha sanning i sig, och så även denna. Men man måste utveckla konceptet. Det omvända -- "double down on your losers, and take outsized profits quickly" -- är en lika bra devis. Det bästa är naturligtvis att kombinera de två, och applicera dem så som situationen tarvar.
Själv skulle jag påstå att den bästa versionen av den intill död medelst leda upprepade klyschan ovan, skulle vara: "ride your winners, double down on your losses". (Detta gäller förstås bara långsiktigt investeringar i bra företag, och endast om den ursprungliga investeringstesen kvarstår oförändrad (eller förbättrad.)) Den vanliga varianten av nyss parafraserade klyscha, må vara en bra för spekulanter utan spelidé, eller de med spelberoende-tendenser, men för de som faktiskt har en aning om vad de gör, är det ungefär lika meningsfullt som innehållslösa motivationscitat.
Skulle även säga att den enskilde svenske investeraren med ett KF eller ISK bör sälja långt oftare än sin amerikanska motpart, då den förstnämnde kan dra fördel av sin skattebefrielse och således utnyttja Herr Marknads labilitet utan några transaktionskostnader att tala om.
Ett annat problem är att författaren, av exemplen att döma, ej heller verkar förstå konceptet annualiserad avkastning särskilt väl: i något exempel -- tror Swedish Match eller Novo Nordisk -- så pratar han om en investerare/trader som 2009 eller däromkring tjänade > 20 % på några måndaer, och (rimligt nog) tog sin vinst. Men, säger författaren, hade han hållit investeringen tills nu (2015) hade han tjänat 70 %! (Siffrorna är mellan tumme-pekfinger.) Ja, det må va hänt, men det förstnämnda är en långt mycket bättre avkastning... Detta misstag görs genomgående i bokens exempel.
För den högintresserade läsaren skulle jag nog ändå rekommendera den, då den ändå berör ett viktigt område, och man faktiskt får ett antal viktiga insikter (inte minst hur viktigt det är att double down).
March 27, 2023
This is a very good book about some of the behavioural aspects of investing. The author, Lee Freeman-Shor, oversaw a number of professional investment managers that managed portfolios of $25 to $150 million. He then analyzed the results and studied what behaviours led some to be more successful than others.
The book is divided into two main sections, the first on what to do when you have a paper loss on an investment and the second on what to do when you have a paper gain.
The losing and winning investment sections are further broken down into successful and unsuccessful behaviours in responding t each scenario. These behaviours are categorized into five distinct types, three types of behaviour when a stock is down (one unsuccessful type, and two successful types) and two types of behaviour when a stock is up (one unsuccessful and one successful).
.
The author makes some interesting conclusions. Maybe I haven't read enough of these sorts of books yet, but I found all the recommendations to be counterintuitive yet logical. They will definitely be something I will apply to my own investing going forward (I found a few of the investing mistakes to be things I currently do)
Overall it is a short, easy to read book on investing behaviour, written in plain English (not much financial jargon). It covers its subject well and provides examples without overwhelming the reader. I highly recommend it.
The book is divided into two main sections, the first on what to do when you have a paper loss on an investment and the second on what to do when you have a paper gain.
The losing and winning investment sections are further broken down into successful and unsuccessful behaviours in responding t each scenario. These behaviours are categorized into five distinct types, three types of behaviour when a stock is down (one unsuccessful type, and two successful types) and two types of behaviour when a stock is up (one unsuccessful and one successful).
.
The author makes some interesting conclusions. Maybe I haven't read enough of these sorts of books yet, but I found all the recommendations to be counterintuitive yet logical. They will definitely be something I will apply to my own investing going forward (I found a few of the investing mistakes to be things I currently do)
Overall it is a short, easy to read book on investing behaviour, written in plain English (not much financial jargon). It covers its subject well and provides examples without overwhelming the reader. I highly recommend it.
September 14, 2022
a very short book, written by a practitioner.
The key idea is that that execution of ideas is more important than idea generation. I agree with it. Analyzing stocks is very different from investing. Among the author's samples (fund managers he has hired), hit rate is only 49%, meaning more than half of buy ideas actually lose money. But good fund managers manage to loss small in the bad ideas and win big in the good ideas.
The author categorizes investors into 5 types - The Rabbit (do nothing when a position goes into losses), The Assassin (stop loss quickly), The Hunter (double down on losing positions), The Raiders (take profit too early on winning positions) and The Connoisseur (ride winners long).
Bad investors are rabbits and raiders. Good investors are assassins, hunters and connoisseurs, depending on your style and personality.
Overall, I think the analysis is consistent with my experience, but the key issue is how to develop a system to execute these. There are so many psychological barriers.
One quote in the book sums it up "Lots of people know what to do, but few people actually do what they know. - Tony Robinson."
The key idea is that that execution of ideas is more important than idea generation. I agree with it. Analyzing stocks is very different from investing. Among the author's samples (fund managers he has hired), hit rate is only 49%, meaning more than half of buy ideas actually lose money. But good fund managers manage to loss small in the bad ideas and win big in the good ideas.
The author categorizes investors into 5 types - The Rabbit (do nothing when a position goes into losses), The Assassin (stop loss quickly), The Hunter (double down on losing positions), The Raiders (take profit too early on winning positions) and The Connoisseur (ride winners long).
Bad investors are rabbits and raiders. Good investors are assassins, hunters and connoisseurs, depending on your style and personality.
Overall, I think the analysis is consistent with my experience, but the key issue is how to develop a system to execute these. There are so many psychological barriers.
One quote in the book sums it up "Lots of people know what to do, but few people actually do what they know. - Tony Robinson."
December 20, 2023
It was surprisingly short and straight to the point with lots of examples. I've read this on my Kindle, and it took a long time, not because of the length but because I'm the kind of person who lets the Kindle discharge on its own. Sorry I just read faster with my ears, this book would have been over during a lawnmoving session had there been an audiobook available for download at the time. ANYHOW the book is gold, it labels groups of people with spot-on nicknames, according to investor behavior on what they do when they are winning and when they are losing. The dear reader can surely find which one she/he is and then see if that is a good approach or a facepalm one. It's very eye-opening. It doesn't help you with what to buy, but it helps you decide how to act long after the purchase when you are either losing (sideways is losing as well, in my dictionary, I sell those stocks that don't do anything), or winning. If the book makes you uncomfy maybe that's a sign that you need to switch personality (or at least approach to position handling).
Thankfully my country has no wash sale rule, so I've become desensitized (or at least) accustomed to taking losses where I can just rebuy the same thing again, but only when it makes sense because I had to exit something else which would be taxed. Then one day I can actualize my cost basis to current levels in a country without long-term capital gains tax lul. Back to the topic of the book, if you just read the conclusions/summary chapters for a refresh, that's almost as good as a reread, I'd definitely pick this one up for that later. As a reminder. If you are really frugal just open the free sample on Amazon and the table of contents lists the key stuff. You don't even need to, here it is:
The Winner’s Checklist: The five winning habits of investment titans
1. Best ideas only
2. Position size matters
3. Be greedy when winning
4. Materially adapt when you are losing
5. Only invest in liquid stocks
The Loser’s Checklist: The five losing habits of most investors
1. Invest in lots of ideas
2. Invest a small amount in each idea
3. Take small profits
4. Stay in an investment idea and refuse to adapt when losing
5. Do not consider liquidity
What I didn't like? He failed to name who the hell was investing for him. For all I care they could have been random hedge fund traders who get rich by index hugging and taking poor people's money. He positions the story as he had billions to spare and gave it away for others to invest. Whereas it probably wasn't his money, he also had a fund and they were all playing with other people's money. I don't like money managers and financial stocks, funds, financial products created by banks or investment banks (hell, I use Wise more than my bank). I simply like companies that create tangible value. But nevertheless, the book is very useful and I can happily say that I am (and hopefully not just aspire to be), a Hunter-Connossieur xD
Why am I not a bunny? (Sorry, Rabbit, it would have been a better name to honor Marty McFly in how they translated Chicken in my language - our translators used bunny, cause the rabbit has the reputation as a coward animal). I tend to double down on good losers or trash the bad ones, it's easy because I can pair them with taking gains on something I no longer want to own. Due to the nature of our shitty currency always losing against the dollar, even if a stock doesn't go anywhere, I create taxable income because the USD rises against us. This makes it so that if I have a stock that made 0% movement or even became a bit of a loser, if I sell it, that creates taxable income. Well then that's something to clear with a few bigger losers so for that reason I don't mind shutting down bad lots. The tax benefits make it easy.
Why am I not a Raider? How else would I own ten baggers, if I snatch paltry 10-20% profits? Whenever something doubles I just store it in a "trophy room" part of the portfolio and don't even consider touching it, let that b*tch compound. I do track annualized returns per lot, and if something is performing poorly or doesn't do anything for say 3 years, I trash it. But I don't mind something that's in an active growing phase. Bottom-trackingly lowered cost basis due to wash sales help me sit in good positions for long since I await the day when I can sell them without long-term capital gains tax, and then I only need to decide whether to buy them back. So the hefty tax to be paid keeps me in a very winning position :D Perfect. The same thing helped me sit in BTC from, idk, when it was 200 to tens of thousands. The only problem with this that I either never sell the winners or sell on the way down when they have exhausted the runway.
Second read, this time as an audiobook:
I went through this in 1 hour 30 minutes as it's a 3-hour book, but I used 2x speed. I was left with the message to materially adapt when losing, and to let my winners be. Not sure if it's because of the book, but I tend to view my portfolio holistically and don't fret when I close some losers because I can find some winners to counterbalance them. I like a more concentrated portfolio, and this year I trimmed the number of positions and had to make the choices. The book is definitely good at showing you investor personality types, letting you realize which one you are, and maybe make you consider if you want to be another kind (and why). With all the little flaws (like not naming his investors) and all the real but slightly useless examples and would-haves I continue to find value in this book. I like the descriptions and actions of the different types, not the specific examples of who did what at what price. I'm happy I found the audiobook version, and thankful that it's short.
BTW, the fact that it used to take me 9 months to read it with my eyes (not constantly or regularly reading of course but it did take long) vs. now just with a yoga session and food making and eating while watching Twitch on mute just highlights the value of audiobooks and why I prefer them.
Thankfully my country has no wash sale rule, so I've become desensitized (or at least) accustomed to taking losses where I can just rebuy the same thing again, but only when it makes sense because I had to exit something else which would be taxed. Then one day I can actualize my cost basis to current levels in a country without long-term capital gains tax lul. Back to the topic of the book, if you just read the conclusions/summary chapters for a refresh, that's almost as good as a reread, I'd definitely pick this one up for that later. As a reminder. If you are really frugal just open the free sample on Amazon and the table of contents lists the key stuff. You don't even need to, here it is:
The Winner’s Checklist: The five winning habits of investment titans
1. Best ideas only
2. Position size matters
3. Be greedy when winning
4. Materially adapt when you are losing
5. Only invest in liquid stocks
The Loser’s Checklist: The five losing habits of most investors
1. Invest in lots of ideas
2. Invest a small amount in each idea
3. Take small profits
4. Stay in an investment idea and refuse to adapt when losing
5. Do not consider liquidity
What I didn't like? He failed to name who the hell was investing for him. For all I care they could have been random hedge fund traders who get rich by index hugging and taking poor people's money. He positions the story as he had billions to spare and gave it away for others to invest. Whereas it probably wasn't his money, he also had a fund and they were all playing with other people's money. I don't like money managers and financial stocks, funds, financial products created by banks or investment banks (hell, I use Wise more than my bank). I simply like companies that create tangible value. But nevertheless, the book is very useful and I can happily say that I am (and hopefully not just aspire to be), a Hunter-Connossieur xD
Why am I not a bunny? (Sorry, Rabbit, it would have been a better name to honor Marty McFly in how they translated Chicken in my language - our translators used bunny, cause the rabbit has the reputation as a coward animal). I tend to double down on good losers or trash the bad ones, it's easy because I can pair them with taking gains on something I no longer want to own. Due to the nature of our shitty currency always losing against the dollar, even if a stock doesn't go anywhere, I create taxable income because the USD rises against us. This makes it so that if I have a stock that made 0% movement or even became a bit of a loser, if I sell it, that creates taxable income. Well then that's something to clear with a few bigger losers so for that reason I don't mind shutting down bad lots. The tax benefits make it easy.
Why am I not a Raider? How else would I own ten baggers, if I snatch paltry 10-20% profits? Whenever something doubles I just store it in a "trophy room" part of the portfolio and don't even consider touching it, let that b*tch compound. I do track annualized returns per lot, and if something is performing poorly or doesn't do anything for say 3 years, I trash it. But I don't mind something that's in an active growing phase. Bottom-trackingly lowered cost basis due to wash sales help me sit in good positions for long since I await the day when I can sell them without long-term capital gains tax, and then I only need to decide whether to buy them back. So the hefty tax to be paid keeps me in a very winning position :D Perfect. The same thing helped me sit in BTC from, idk, when it was 200 to tens of thousands. The only problem with this that I either never sell the winners or sell on the way down when they have exhausted the runway.
Second read, this time as an audiobook:
I went through this in 1 hour 30 minutes as it's a 3-hour book, but I used 2x speed. I was left with the message to materially adapt when losing, and to let my winners be. Not sure if it's because of the book, but I tend to view my portfolio holistically and don't fret when I close some losers because I can find some winners to counterbalance them. I like a more concentrated portfolio, and this year I trimmed the number of positions and had to make the choices. The book is definitely good at showing you investor personality types, letting you realize which one you are, and maybe make you consider if you want to be another kind (and why). With all the little flaws (like not naming his investors) and all the real but slightly useless examples and would-haves I continue to find value in this book. I like the descriptions and actions of the different types, not the specific examples of who did what at what price. I'm happy I found the audiobook version, and thankful that it's short.
BTW, the fact that it used to take me 9 months to read it with my eyes (not constantly or regularly reading of course but it did take long) vs. now just with a yoga session and food making and eating while watching Twitch on mute just highlights the value of audiobooks and why I prefer them.
December 31, 2023
Some very valuable research and conclusions. It's often said that the most difficult part of investing or trading is knowing when to sell, rather than when to buy. Using real data from, this book lays out the case for some good exit strategies for losers and winners, to help minimise losses and maximise profits. The top fund managers and investors do get it wrong; that much is clear. Some of them get it right, and the author shows us how. What's interesting is that not one of these top investors used a strategy that's shown to generate even greater returns: that of buying more of what's working as it rises. Warren Buffett did it with Apple, for example, and it has paid off handsomely. However, the author can only report on the data he has gathered, and none of his team did this.
There are a couple of howlers. For example, if you've shorted a stock and the price is going up, you do NOT sell it to exit: you buy back to exit. There's also a Tony Robbins quote attributed to Tony Robinson, who is a comedy actor and presenter. The idea of Baldrick as a life-coach is a gem.
There are a couple of howlers. For example, if you've shorted a stock and the price is going up, you do NOT sell it to exit: you buy back to exit. There's also a Tony Robbins quote attributed to Tony Robinson, who is a comedy actor and presenter. The idea of Baldrick as a life-coach is a gem.
October 21, 2018
A very helpful and practical book for someone who is super blind in this sector (me). I enjoyed reading the book and had many aha moments while reading the book. I think it is because it doesn’t discuss hard technical formula, but rather the psychological side of pro investors when they face losing and winning situation.
The author classifies many of ‘pro’ investor into 5 types, tells the differentiation response for each types, and advices which one is the best response.
Simple mantra that actually apply for life in general ‘to keep life moving on, we should always take action’ is also applied in investing. In this book, the author has concluded that in time of losing, either you sell or buy more, whilst in time of winning, delay the gratification and ride on the moment.
The author classifies many of ‘pro’ investor into 5 types, tells the differentiation response for each types, and advices which one is the best response.
Simple mantra that actually apply for life in general ‘to keep life moving on, we should always take action’ is also applied in investing. In this book, the author has concluded that in time of losing, either you sell or buy more, whilst in time of winning, delay the gratification and ride on the moment.
October 22, 2019
This book should be a sentence long:"cut Ur losses quickly,let Ur profits run" the golden rule ...nothing new.
Now to the cardinal Sin commited by the author :
Advising "private investors" to add to a losing position...
NEVER ADD TO A LOSER. It is the second biggest mistake a trader can make( the first is letting a profit run into a loss). Trying to correct a mistake (being in a losing position), with another mistake, (adding to a loser)is the most dangerous thing u can do in trading and investing. The author mentions Stanley druckenmiller who if he had read his work would probably point out that, not only would he not add to a loser, he would most probably close out and reverse his position by shorting. Overall not a bad book, just unnecessary
Now to the cardinal Sin commited by the author :
Advising "private investors" to add to a losing position...
NEVER ADD TO A LOSER. It is the second biggest mistake a trader can make( the first is letting a profit run into a loss). Trying to correct a mistake (being in a losing position), with another mistake, (adding to a loser)is the most dangerous thing u can do in trading and investing. The author mentions Stanley druckenmiller who if he had read his work would probably point out that, not only would he not add to a loser, he would most probably close out and reverse his position by shorting. Overall not a bad book, just unnecessary
This entire review has been hidden because of spoilers.
February 25, 2021
Good advice, no doubt, but not much of it - and if you've read much on investing before, you'll probably already be familiar with what there is, not least because it's been regurgitated abundantly by the investing world. I read the Kindle sample, was torn whether to fork out for the full book, Googled around to see if I could get the gist from blogs etc about the book, decided I probably could, then caved and bought the book anyway, only to discover that I really had got the gist already.
I would have preferred more specifics - e.g., what percentage to sell and how often / based on what triggers when riding a stock upwards over the longish term. All this book tells you to do is take some profits, it says nothing at all about how to do it.
I would have preferred more specifics - e.g., what percentage to sell and how often / based on what triggers when riding a stock upwards over the longish term. All this book tells you to do is take some profits, it says nothing at all about how to do it.
July 27, 2021
"The bulk of investors' return in bull markets come in the first third of the rally. Also, the first half of a rally accounts for two-thirds of the overall return in a bull market."
"Forecasts tell you little about the future but a lot about the forecaster" - W. Buffet
"The one thing you do not hear is that he/she made a lot of money because she stayed invested in her great idea/company."
Winner’s Checklist
-Best ideas only
-Position size matters
-Be greedy when winning
-Materially adapt when you are losing
-Only invest in liquid stocks
The Loser’s Checklist
-Invest in lots of ideas
-Invest a small amount in each idea
-Take small profits
-Stay in an investment idea and refuse to adapt when losing
-Do not consider liquidity
"Forecasts tell you little about the future but a lot about the forecaster" - W. Buffet
"The one thing you do not hear is that he/she made a lot of money because she stayed invested in her great idea/company."
Winner’s Checklist
-Best ideas only
-Position size matters
-Be greedy when winning
-Materially adapt when you are losing
-Only invest in liquid stocks
The Loser’s Checklist
-Invest in lots of ideas
-Invest a small amount in each idea
-Take small profits
-Stay in an investment idea and refuse to adapt when losing
-Do not consider liquidity
May 29, 2017
More useful for investing than for trading, as the data becomes handy with long term (3+ years) strategies.
I liked the fact that the overarching thesis is backed up by data at every major point, the author took analyzed over one thousand trades and ran the numbers on what made them successful: it turns out that data supports the old adage "cut your losses, let your profits run".
There's a section at the beginning where many of the cognitive biases explored by Kahneman and Tversky are contextualised into the trading environment, though I wish the author had spent more time explaining them and relating real life examples from his long carreer.
I liked the fact that the overarching thesis is backed up by data at every major point, the author took analyzed over one thousand trades and ran the numbers on what made them successful: it turns out that data supports the old adage "cut your losses, let your profits run".
There's a section at the beginning where many of the cognitive biases explored by Kahneman and Tversky are contextualised into the trading environment, though I wish the author had spent more time explaining them and relating real life examples from his long carreer.
December 12, 2019
A concise look into the habits of professional investors.
The book is short but will give any investor something to think about.
The case is made for lower diversification, faster selling of losers (but not too fast), and when it comes to your winners - be boring and stick with them over the years. Sell small amounts over time. It is those one or two winners that make or break your returns. Jeff Bezos is not the richest man on the planet just because he started a business. He didn’t diversify and kept the vast majority of his wealth in his single best idea.
The book is short but will give any investor something to think about.
The case is made for lower diversification, faster selling of losers (but not too fast), and when it comes to your winners - be boring and stick with them over the years. Sell small amounts over time. It is those one or two winners that make or break your returns. Jeff Bezos is not the richest man on the planet just because he started a business. He didn’t diversify and kept the vast majority of his wealth in his single best idea.
August 27, 2020
This is a really good read on investing! Learnt so much important concepts on execution. Here's my take to sum it all up; only invest in your best ideas and enter slowly over time but in large positions, when the price is falling, be a Hunter and materially adapt to buy more or be an Assassin and cut loss between 20-33%. Finally, when the price is going up, be a Connoisseur and exit slowly over time, and ride the winners to get multi-baggers.
September 10, 2021
Actually 4.5 star.
This Book describe the fact that you can be wrong more than be right when come to stock or investment selection and still get a fabulous return.
The most important part is what you have done when your position is losing money or gaining money. That is the meaning of execution is.
The content in this book is not novel or special. However, it can change my investment idea.
For that reason I think this is a great book.
This Book describe the fact that you can be wrong more than be right when come to stock or investment selection and still get a fabulous return.
The most important part is what you have done when your position is losing money or gaining money. That is the meaning of execution is.
The content in this book is not novel or special. However, it can change my investment idea.
For that reason I think this is a great book.
January 16, 2022
A short and simple read on "Execution". There are two essential lessons that one can draw from this book: --
-Why cutting down on loosing investments is essential and how to do that -- Price based Stoploss and Time based Stoploss
- How to stay invested in winning investments -- keep trimming the position in small amount if psychologically it is difficult for you to hold an investment which is already up 30-40%+
-Why cutting down on loosing investments is essential and how to do that -- Price based Stoploss and Time based Stoploss
- How to stay invested in winning investments -- keep trimming the position in small amount if psychologically it is difficult for you to hold an investment which is already up 30-40%+
August 10, 2019
ถ้าเชื่อในกลยุทธ์การซื้อแล้วถือ (Buy and hold) เล่มนี้ให้ตัวอย่างการตัดสินใจผ่าน Case study หลายเคสแบ่งแยกตามประเภทของนักลงทุนและผู้จัดการกองทุนที่ผู้เขียนเคยว่าจ้าง อย่างไรก็ตามทุกเคสเป็นการมองย้อนกลับไปในอดีต ซึ่งดูเหมือนมันจะง่าย แต่การปฏิบัติจริงคงไม่ได้ง่ายตามแบบในหนังสือยกตัวอย่างไว้ ด้วยปัจจัยและสภาพแวดล้อมของตลาดทุนที่มีการพัฒนาการตลอดเวลา
November 10, 2019
You don’t have to worry about whether an investing idea works or not if you focus on how to invest in that idea, how much money you allocate to it and what you will do when you find yourself in a losing or winning position. This book is a good guide about skills which you need to adopt and habits to abandon to become a better investor
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