100+ Great Investors Share Their Most Important Investing Lesson

[00:00:00] Welcome to excess returns where we focus on what works over the long term in the markets.

[00:00:05] Join us as we talk about the strategies and tactics that can help you become a better long-term investor.

[00:00:10] Justin Carbonoe and Jack Forehand are principles at the Lydia Capital Management.

[00:00:14] The opinions expressed in this podcast do not necessarily reflect the opinions of a Lydia Capital.

[00:00:18] No information on this podcast should be construed as investment advice.

[00:00:21] Securities discussed in the podcast may be holdings of clients of a Lydia Capital.

[00:00:24] Hey guys, this is Justin.

[00:00:25] When we started doing interviews on excess returns, if you could subscribe to the channel and like the video, we would greatly appreciate it. Thank you for all your support of Exeterms in 2023 and happy new year. I think that something that is really, really important, especially in this environment, I think that we have a lot of investors who may have felt like they were overexposed to growth stocks with no earnings.

[00:01:41] They may have invested far too much in crypto.

[00:01:45] I think a lot of investors right now,

[00:01:46] maybe they invested long on the yield curve to learn and update your models of the world. And it's by the act of forgiving ourselves for mistakes in the past up to continue to be brave and to find, and if something that we haven't covered actually is that we've talked about kind of risk of us approaches to the world. And a question is, how do you be risk of us?

[00:03:00] How do you take care of the downside?

[00:03:01] How do you make sure that you're not on a path,

[00:03:03] one of those, you know, slicing yourself into 1,000 people, ticket to building durable wealth over time. And when I emphasize as diversification, I don't mean stocks and bonds are not diversification. It's better than holding an old stock portfolio. It's better than holding one stock. But tree diversification means diversifying

[00:04:22] your asset class exposures and diversifying

[00:04:25] your strategy exposure, your alpha strategy exposures, right? and various kinds. That's how they survive that period during a period when stocks and bonds didn't do well. And that's what you have to face. What does a high interest rate environment look like with elevated inflation? It's something you've never seen before. And so open your mind to the diversification possibilities that are out there.

[00:05:40] Knowing yourself and what it is you think you are doing,

[00:05:45] do you think you're a value investor?

[00:05:47] Do you think you're a growth investor? insight about drug companies and healthcare services. There are industries that they just cannot have them really well. Anything in Jackie Woods universe, I can't look out with confidence 10 years from be. Yeah, I think I think that I would say get out of your own way. He didn't put it exactly that way, but he could have what you're doing before you can believe in what you did actually came to a result where you say, I really believe in this. And so defining who you are as an investor and what you believe as an investor is really the first step in conviction.

[00:09:41] So start there and then really get deep into stocks,

[00:09:45] where I think often people do it the inverse

[00:09:47] and you find it along the way. to do that. You know, my default answer for this is always something tracking error related, but we've already touched on tracking error. So I'm going to do something controversial. I'm going to disagree with Buffett. This volatility, not to instruct you, but to serve you. I mentioned that a little earlier. The other chapter talks about margin of safety.

[00:12:20] Just because somebody talks about margin of safety in

[00:12:23] their investment process doesn't mean there automatically a value investor. A lot of this stuff is just, how could I say, not jumping on fads, not jumping on the bandwagon. We're social beings, we're kind of hardwired to follow the herd. So it's something that's constant that you have to fight. Avoiding behavioral biases, just being disciplined in general.

[00:13:40] I think the discipline not to check that stuff every day, like just set it there and forget

[00:13:45] about it, just stay realized performance is bad. And the same also holds for relative performance, be it value versus growth and the value spread

[00:15:02] widens, actually the world that has ever existed, and you put all that into a massive database and you calculate up what are the sharp ratios, what are the annualized that way is an honest view of reality. So I would say realistic expectations, while not exciting, liberates you from all the bad habits or helps liberate you from the bad habits of chasing blowers and things that just aren't real.

[00:17:40] I think taking ownership of your process

[00:17:44] sounds like something that's simple,

[00:17:46] but a lot of people him that would do it as much as he could up until a point and then to pull that trigger and get that trade done. And even if the trade failed for reasons that were out of

[00:19:04] his control, because if he only took that little extra bit of time, obviously I should be all in, definitely not the case. And in fact, like that ceiling should view worries. So a deep, deep skepticism is probably the biggest lesson I much about him, but he had made a lot of money in another industry, a lot of money. It was very successful. And, you know, if, you know, as an individual investor or as a manager, if we've spent a lot of time and thought constructing a try to get cute. Something will happen, they'll say, oh, and they'll go in there and start day trading or they'll pull the rip cord and sell out completely. With the benefit of hindsight, that's usually a mistake. But then if your investment plan and practice hasn't been sort of like rounded in your philosophy that is actually really deeply rooted in that understanding of what these, what I would call tail environments feel like,

[00:25:43] then I think that there very excited because they want to buy a share price that will be bought at 10 and sold at 12 and they get very kind of focused on that. If you're a long-term investor, I think that can be fun by the way and I think you can make money doing that. But if you're looking to buy and hold for a long period of time, then you need to start thinking about buying a business

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