Kill Your Darlings

Once upon a time, I wanted to blog about stocks.

Stock writeups are a literary form unto themselves. A good stock writeup isn’t just about solid analysis. A good writeup keys in on the handful of variables and risks you ought to consider if you own a stock. It’s a useful exercise for crystallizing thinking and creating a record you can review later, for evaluating process improvements.

So why not blog about stocks?

For one, I’m not much of an analyst. I’m drawn more to portfolio construction and management. I’m also a big believer in the Pareto Principle, a.ka. The 80/20 Rule. When it comes to security analysis, I’m impatient. My most successful investments have always been the stupidly obvious ones. Basic pattern matching with some guardrails.

There are times where minute details can make or break an investment. (shoutout to folks who specialize in capital structure arbitrage trades in obscure bank securities) Complex investments requiring lots of analysis are generally not investments I want in my portfolio. I’m not smart enough to carry them off. Even if I were, it’s a lot of brain damage relative to expected returns. So then you end up screwing around with a bunch of leverage to make it worth your while.

I’m not trying to build a world-class hedge fund franchise here. I’m trying to maximize the spread between effort and earnings so I can move onto something useful, like working on my golf game.

This brings me to an interesting failure mode where an investor believes “mainstream” investments are never good enough for her because she she can get an informational edge in esoteric, capacity-constrained situations. Leave dip-buying Facebook for the plebs, she thinks, as if money made from super smart stuff were somehow worth more than the money made from super dumb stuff.

Sometimes the juice is worth the squeeze in the esoteric stuff. Sometimes it’s not. I’m here to tell you parasitism is vastly underrated as an investment strategy.

Moreover, it can be dangerous to write publicly about stocks, if it turns into a exercise in feeding your ego.

Say it with me: I don’t care about being right. I care about making money.

Now ideally I want to make money because I’m right. But I make mistakes. I make mistakes all the time. It’s not realistic to expect to avoid mistakes entirely. I’d rather focus on identifying mistakes quickly, and cultivating the mental flexibility to get off those positions quickly. This goes back to the problem of attachment. There’s a lot of talk about conviction in this business. We tend to fetishize the lone contrarian genius. I am susceptible to the lone contrarian genius mythos, personally.

Conviction is not an unalloyed good. Conviction can be a mental prison. Write about an idea publicly and people will come out of the woodwork to tell you all the ways you are wrong. When you put a lot of work into publicizing an idea and then defending it, it’s easy to get attached. Pretty soon you’re more worried about being right than making money. Players of all skill levels make this mistake.

An old piece of writing advice is instructive here: kill your darlings.

Nonetheless, with the right intention and mental discipline, going public with an idea can be a good way to surface risks and facts you may have missed. People will freely investsplain all kinds of helpful things to demonstrate their intelligence and analytical prowess.

If you are a Very Famous Investor, talking your book can move the market in your favor. Or, perhaps more importantly, move the market narrative in your favor. The best activist investors specialize in this kind of thing. A stock’s “brand” has an immense influence on its multiple. This is a different game than the one I’m playing, or even capable of playing, with my own capital. (though it is worth considering how we, as very small, very not-famous investing parasites might ride the coattails of activism for fun and profit)

I have no doubt there are people in this world who can discuss and defend ideas publicly without becoming attached. Good for them. I admire them for it. I don’t particularly care whether you are one of these people, or whether you’re more like me. I care about recognizing the difference.