These lines by Robert frost have always intrigued me and somehow I’ve consciously or subconsciously chosen the road less traveled by in many areas of my life.
Somewhere ages and ages hence:
Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.
– Robert Frost
However I think it wasn’t my default choice when it came to investing.
I did exactly as the herd expected me to. Reading the pink sheets on daily basis was a habit I had cultivated as a newly graduated chartered accountant. Tracking stock prices daily in the hope of noticing some patterns was a hobby. It was an honour to be included in water cooler conversations discussing the next hot stock and coolest insider news (read tips). Looking back now I feel so foolish to have participated in such activity. On second thoughts though I feel it was necessary and an necessary act of providence.
I know many people say that vicarious learning would shorten the learning curve – but I guess it can’t beat the lessons personally learnt. If you don’t know what that means ask the guy who touched the hot stove by accident.
Fortunately a very years back- 2011 to be precise – things changed. Rather I should say I changed. I stepped aside to think for a moment and then decided to start again on a fresh slate. Sold all my legacy stocks, picked up the investment bibles recommended by everyone and slowly began to travel the road less traveled by
Up until now, I had heard about the legendary investor – Warren Buffett (who hasn’t’!) and read some of his quotes. One of those quotes which I had heard many times was this one[box]
There are two rules of investing
Rule #1 – Don’t lose money
Rule #2 – Never forget Rule#1
– Warren Buffett[/box]
When I started reading the books and implementing some of the lessons, the true meaning of these words dawned upon me. The central idea was to avoid “disasters”. If you could avoid the truly stupid mistakes- the carefully picked good choices will see through and ensure that you have enough for a rainy day and much more.
There was another person to whom I got introduced on the road less travelled by and who has since become one of my foremost influences – Howard Marks. In his book – The most important thing – he mentions this anecdote about tennis players. This was based on an article titled – “The Loser’s Game” by Charles Ellis
In professional tennis, players win by hitting more winners. Amateur tennis players on the other hand win by making lesser mistakes than their opponents. According to Marks, investing is more akin to Amateur Tennis. If one can just keep the ball in play and focus on trying to avoid mistakes – it will have a great payoff in the long run.
These words resonated with me. I immediately took a look at my portfolio. Although I had done a fair job with picking some good companies, I had not completely given up my gambler’s instinct (read – speculative urge) by picking up a vice stock (whose main business was – guest what – “gambling” or should I use the more kosher word – gaming). I bit my tongue, stared at the large loss I was sitting on and pulled the plug.
While I make it sound that it was a cold-blooded call – it was quite far from being so. I was actually pushed over the edge by a series of new lows in the market and ran out of patience and finally gave in to a bout of panic selling. I kept telling myself that I was being brave and cutting losses. It was a fair chunk of loss though.
There was a still a long way to go on the learning curve. Having again kept my hand on the hot stove I became slightly more cautious and reinvested the funds in some of my better and saner choices. 3 year later I was sitting slightly smug with a CAGR bettering the benchmark indices and my own mutual fund SIPs. I had finally learnt my lessons and was on my way to becoming a better investor (or so I thought) until I read this memo from my guru Howard Marks a few weeks back.
I am now back to the drawing board. Lessons from this memo will form a part of my next post.