The market always has bulls and bears. To be a good and long-term investor, being able to adapt to survive, endure, learn and improve with each crash is crucial.
This is a keystone post on investing. I am learning and refining my strategy; work in progress. Hence, I do update this post quite frequently.
Take responsibility
Nothing succeeds by blaming and hoping. We have to take ownership and responsibility.
I am not a product of my circumstances. I am a product of my decisions.
Stephen R. Covey
Stocks wonât make you wealthy. Your behaviour around stocks makes you wealthy. Stocks need your help. The only thing you control, your behaviour, is the biggest factor in your success with stocks.
Nick Murray
Chance only favours the prepared mind.
Louis Pasteur
The one who wins is the one most prepared.
The amount of work you do on an investment often correlates with the amount of volatility you’re willing to endure.
Ian Cassell
You cannot borrow conviction.
A related post: A bright future: Own the game
đ đ° The market is crashing! Where is the bottom? đź
Self-doubt, fear and losing confidence
It is one question we keep asking ourselves and others as the market keeps dropping. Investors will find their unrealised profits being diminished rapidly into unrealised losses and the latter keeps ballooning. Gurus will be explaining “I told you so” and how grave the situation is and will be. There will be schadenfreude. It can be very sentiment driven with lots of emotional wild swings as markets react to each twist and turn of the market. We can be easily affected emotionally by the news and swinging prices; shaking our confidence with fear creeping in. We felt confused and anxious; hoping for the situation to stabilise and improve.
In a downcycle, we self-doubt ourselves as investors. Am I a lousy investor after all? Am I wrong? What should I do now? If we are buying low now, will the share price drop further? What is low now can become lower as the down cycle drags. We felt lost. Everyone is looking for answers. Where is the bottom? How long and deep will the downcycle be?
People prefer certainty and dislike volatility. We seek someone (credible) to guide and follow us through the challenging period. No one may have a clear definitive answer of how the situation will evolve, where the bottom is and advise what the game plan should be. Being vested, we can be more biased to any cues of good news (confirmation bias).
In the midst of chaos, there is also opportunity.
Sun Zhu
As the markets keep tanking, we lose confidence and conviction about our plan and stocks. Most people underestimate the downside and overestimate their risk appetite. Investors look like fools holding their investments when markets fall. The pain of a loss is greater than the enjoyment of a gain (loss aversion). It is hard being in the down cycle holding to an investment portfolio that keeps losing its value. Being independent and rational is difficult.
I feel no shame at being found still owning a share when the bottom of the market comes. I do not think it is the business, far less the duty, of an institutional or any other serious investor to be constantly considering whether he should cut and run on a falling market, or to feel himself open to blame if shares depreciate in his hands. I would go much further than that. I should say it is from time to time the duty of a serious investor to accept the depreciation of his holdings with equanimity and without reproaching himself.
John Maynard Keynes (1883 – 1946)
Do not tune out (too long)
With constant grim news, investors lose interest and confidence that they tune out of the market — they just shut down. It is good to tune out to sort out our thinking and plan. It is often a question of how long we tune out. It is not easy to keep calm and soldier on to critically look at our portfolio to do the necessary — weed out the poor quality and add the high quality.
This is not a time to panic. It is a time to keep calm, pause and reassess the challenges and opportunities. We need to recognise the changing environment and shift our mindset to respond with intention rather than regret.
âTo be like the rock that the waves keep crashing over. It stands unmoved and the raging of the sea falls still around it.â
Marcus Aurelius, Meditations
RWH025: An interview by William Green with Samantha Mclemore of Patient Capital where they talked about how Bill Miller reacted to the 2001 dot com burst, 9/11, 2008 GFC, etc
The Chinese character for the crisis is both danger and opportunity. A crisis is neither good nor bad; it is just a fact of life. Opportunities exist during dangerous times. If we are unable to operate well during dangerous times, the opportunities available can be limited and less rewarding.
The irony of market crashes
Be prepared to run towards the fire đ„
Bad times create big opportunities.
IMPORTANT: Have a plan, build conviction (not hope) and focus
Our investing plan should focus on answering the typical 6 questions of investing:
- What to buy?
- When to buy?
- How much to buy?
- What to sell?
- When to sell?
- How much to sell?
We need a plan with a disciplined approach to ride through the down cycle. Not knowing what to do with a portfolio of stocks during a crash is dangerous.
During severe pullback, being rational is difficult. Most opinions are more pessimistic than optimistic. Companies tend to be cautious and cryptic about the future and their plans. We have to be objective and decisive in planning and executing the plan. Be cautious. We need to be more hardworking to delve deep to validate and find high-quality gems.
Avoid a hoping and speculative mentality. Reduce anxiety by spending less time watching share prices and news, and more time honing investing skills and researching companies.
Be fearful when others are greedy and greedy when others are fearful.
Warren Buffett
Be prepared for the worst. We are unsure of the market bottom. Apply the Stockdale Paradox.
âI lived on a day-to-day basis. ⊠Most guys thought it was really better for everybody to be an optimist. I wasn’t naturally that way; I knew too much about the politics of Asia when I got shot down. I think there was a lot of damage done by optimists; other writers from other wars share that opinion. The problem is, some people believe what professional optimists are passing out and come unglued when their predictions don’t work out.â
Admiral James Stockdale
When the market drops, the higher the uncertainty, the lower the risk, the wider the margin of safety and the higher the rewards.
It favours those who put in efforts to delve deep to study and find high-quality companies and patiently wait to buy at low prices.
A good read: The Dhandho Investor by Mohnish Pabrai
Another good read: The Art of Execution: How the worldâs best investors get it wrong and still make millions by Lee Freeman-Shor
The top investors can be wrong most of the time and still make lots of money. It is about how much money you allocate to each investing idea and what you will do with your losing and winning positions.
Keep learning, improving and pivoting.
Knowledge will be the antidote to fear.
Keep ignoring feedback and life will keep teaching you the same lesson.
James Clear
What to buy and sell
The value of a company is derived from a few variables as shown below. We need to evaluate how the situation will affect these variables.
- How will the discount rate be affected?
- How will the companies be affected by their revenue, margins and cash flows?
- How badly will they be affected by debts?
- Will the company be able to thrive, survive or fail?
Let us use the matrix below to evaluate and categorise our stocks:
- Evaluate each investment in our portfolio with the matrix above objectively:
(a) who are the high-quality companies that are capable of doing well
(b) who may not do well or worse, their survival may be at stake with the tough operating environment - How will the high-quality and low-quality companies be affected by valuation? During a downcycle, it is back to valuation.
- How are their charts looking on longer time frame? Are they breaking down?
- Focus on the buy and sell lists
(a) Buy list: Keep validating their ability to thrive in a challenging situation and their valuation.
(b) Sell list: Sell before it falls further and raises capital to add stocks to the buy list. - As the pullback drags, a group of companies worth looking at are those that have been beaten down a lot as the market does not believe they will survive. These companies may have made some mistakes, miss earnings and/or poor fundamentals and the market writes them off.
Focus on those with limited downside risks and have upside potential.
What, when and how much to sell
âThe chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions.â
Benjamin Graham
We need to ask ourselves critically:
- Is the sector resilient? Is the sector facing headwinds or enjoying tailwinds?
- Will the failure risk of the company increase?
Will revenue growth, margins and cash flow be affected?
Will the company have enough cash?
Will the company be capable of doing better than the competitors? - Is the valuation too high?
- Are there better investments that we can redeploy our capital to (compare them to our buy list)?
What to sell is the opposite of what we buy:
- Revenue growth is likely to stagnate or weaken.
- Gross and net profit margins will weaken and worse, turn to losses.
- It has problems generating free cash flows.
- It has high net debts.
- It has high stock-based compensation relative to revenue and market cap.
- It has high valuation expectations.
- The charts are breaking down.
Hence, what to sell will be:
- Poor quality companies with increased failure risk
- High-quality companies with very high valuations.
Selling is painful. Sunk cost fallacy and loss aversion will creep in that we felt hesitant to sell to realise our lower profits or losses. However, holding these companies longer will be more painful if the market continues to go down. Sell low-quality companies fast — these may be the speculative stocks we have been punting and poor-performing companies we have been giving chances to. Be rational and disciplined to sell.
Do not hope. We are biased towards looking for signs of optimism. We may believe that the worst is over and we will just hold for the eventual recovery. However, the market and companies’ situations may not improved and the share prices may keep inching lower. We tend to be “tolerant” and ignore the small drops but over time, it can be a quick sand effect to become a big drop over time.
Do not indulge in self-sympathy. Do not avoid confronting the situation and keep tuning out. Sell so that we are less stressed and comfortable. Selling helps to raise capital and wait for the opportunity to switch to better-quality companies. We may not be right with our selling; we just have to do what we think is right; learn and improve.
Volatility â Risk
Volatility is the extent of the swing in share price. Beta is a way of measuring a stock’s volatility compared with the overall market’s volatility. Risk is the possibility of permanent loss of capital. It relates to the quality and competitiveness of the company.
A company’s share price can have a wild swing in the short term while it keeps growing. In the short term, it is more sentiment-driven and the market is worried about its future due to some specific actions caused by the macro environment and the company. The wild swings in share price can cause wild swings in our emotions; from being happy to fearful and worried. In the longer term, the company has to prove itself as the share price will correlate with its financial performance. The stock is not the company.
A good post of a checklist for risk: David Gardner’s Step-By-Step System to Measure Risk in the Stock Market
Buy good, buy low and keep validating to hold long
The best thing that happens to us is when a great company gets into temporary trouble. ⊠We want to buy them when theyâre on the operating table.
Warren Buffett
Share prices may fall more due to FUD (fear, uncertainty and doubt) and panic-selling/profit-taking (analogous to the âbabyâ that got thrown out together with the bathwater) than the news posing a material impact on their long-term potential. The market is âinefficientâ. It has low expectations; assuming a pessimistic future. This is a great opportunity to identify and pick up gems at discounted prices (oversold) while many are fearful, confused and disappointed that they are leaving the market.
Do not buy just because the share prices are getting cheaper. When the operating situation is challenging, it is very important to ensure that we have the right high-quality companies in our portfolio that can thrive vis-a-vis its competitors at good prices.
A down cycle is a sales season for investment. It is a good time to find great companies.
âBad companies are destroyed by crisis, good companies survive them, great companies are improved by themâ
Andy Grove
Andy Grove’s quote sums it up well.
The same can be said of investors and traders: Bad investors/traders are destroyed by crisis, good investors/traders survive, and great investors/traders are improved by them.
âYou cannot overtake 15 cars in sunny weatherâŠ. but you can when itâs raining.â
Ayrton Senna, F1 champion
The longer the challenging times, the easier it gets to spot the bad, good and great companies. We just have to spend time looking for them.
Only when the tide goes out do you learn who has been swimming naked.
Warren Buffett
We need to assess how they are being affected and the extent of the impact. Here are some general parameters to look for:
- Ability to grow revenue
- Ability to maintain gross/net margin (%)
- Good free cash flows yield
- Has a good sizable net cash position as a buffer to withstand the down cycle and be aggressive if needed to
- ROIC > WACC
- Ability to reinvest to strengthen its moat while others are cutting back
The above should be compared to (a) its key competitors to evaluate their relative competitive position and (b) their valuation at attractive levels.
These companies usually fall into a few categories:
- Market share grabber: When times get tough, high-quality companies grab market share from poor-quality companies.
Examples: Sheng Siong, China sports brands, ANTA and Li Ning versus Nike and Adidas and Pinduoduo - Cheaper and better products and services: When times are tough, products and services offering cheaper and better options will be in demand.
Example: E-commerce providers selling cheaper and better alternatives to physical stores. - Essential services: The services are needed. These could be government services (mostly homeland security and defence), healthcare and discount retailers.
Examples: Sheng Siong, Axon and TransMedics
In a tough economic environment, there can be three phases that it will go through:
- Proactive government policies to cushion the hard landing and/or improve the economic situation
- Improving valuation: While earnings may not improve, the discount rate (cost of equity and debt) stabilises or start to reduce and the failure risks reduce.
- Earnings: Outlook begins to be better and earnings start to grow.
We can study how high-quality companies (such as Amazon, Microsoft, Nike, McDonaldâs, Costco and Starbucks) had been able to ride through various challenging periods and grow consistently to become where they are now. It is great to read about their stories and their resiliency.
Check out: A case study of a mega-compounder: Amazon
We need to be confident and convinced in our investing plans and choices. Be more diligent and more selective in investing, following their progress to validate our thesis to gain our confidence. As the markets keep going down, confidence and convictions become more and more critical.
Investing in individual stocks requires lots of research constantly to find these gems and can be difficult. ETFs based on key indices, sectors and/or countries can be another good choice to invest in.
When to buy and how much to buy
When the time comes to buy, you wonât want to.
Walter Deemer
It is difficult to time the market lows. We will not know the low at the moment but only after passing the low. This is difficult as we are unable to know how long the down cycle will last.
A strategy is Dollar Cost Averaging (DCA). Here, the investor divides up the total amount to be invested across periodic purchases of a target asset to reduce the impact of volatility on the overall purchase. It aims to avoid making the mistake of making one lump-sum investment that is poorly timed about asset pricing (i.e. timing the market).
We can DCA in several ways:
- Invest a fixed capital within every predefined period; buy $x every month
- Invest a fixed capital with every % or dollar drop in the market; buy $x whenever the share price drops x% or $x
- Invest a fixed capital whenever the price reaches each technical support level; for example:
- buy $x (or DCA for a period) when the weekly RSI reaches 20 which has been its lowest before it rebounds
- buy $x when the share price breaks the downtrend line
- buy $x when the 200-day Moving Average cuts the share price from below
Check out this post: Using technical analysis to time the market bottom
Depending on how severe we think the challenging period will last, it will determine (a) how much to invest and (b) how often we DCA.
Invest with money you can afford to hold through the investments. The money invested must be able to stay invested for a long time as we do not know how long the down cycle may last. Hence, do not over-invest. Do ensure that we have sufficient funds to meet unexpected expenses.
Pace your DCA appropriately so that we do not over-invest and become anxious about having little spare cash and investing plan not showing results yet. Do not be greedy; do not leverage. It is to survive the downturn (protect the downside) than maximise the gains. It can be a very long run with an unclear finishing line.
Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in corrections.
Peter Lynch
Portfolio management is critical. Do not over-allocate a stock or a sector; diversify.
Check out this post: The great investing myth (5): Concentration versus Diversification
Learn and improve to use down cycles to buy low
Your ultimate success or failure will depend on your ability to ignore the worries of the world long enough to allow your investments to succeed.
Peter Lynch
Avoid recency bias.
Keep learning instead of watching the market. Instead of following the breaking news and market actions, spend the time learning to improve our investing skills and diving deep into our investing ideas to hone our edge.
âI insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking and make less impulse decisions than most people in business. I do it because I like this kind of life.â
Warren Buffett
Compound our learning first and over time, our returns will compound. Watching the market does not value add much.
I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.
Charlie Munger
Learn from failures and be self-aware
Successful people have all failed. I’ve had a lot of failures. But I use them to learn from, as opposed to pretend they didn’t happen. If you pretend they didn’t happen, they’re going to keep repeating themselves. Admit your failures, and then learn from them.
Stanley Druckenmiller
As the market crashes, failures are painful as our portfolio goes into loss. Everyone fails before. The key is our ability to admit our failures, learn from them, and be self-aware so that we do not repeat them (especially during a bull market where we get greedy and forget the investing cardinal rules that we developed during market crashes and go euphoric again — sadly, the cycle repeats).
A great interview where Stanely spoke about being self-awareness and failure at about the 38 min mark: Stanley Druckenmiller, the #1 investor in the world â See the future differently
Here are excerpts from a good interview by William Green with Ray Dalio, a billionaire investor who founded the world’s largest hedge fund, Bridgewater Associates, about the 1982 debt crisis where Mexico defaulted its debt that Ray Dalio had to fire everyone at Bridgewater and ended up borrowing four grand from his father:
…. It was such a painful experience, I think and then I really learned pain plus reflection equals progress. Thatâs one of the principles. I learned that every time I have an encounter that itâs like a puzzle that if I can solve the puzzle, you know, what should I do differently or how should I deal with it, I would get a gem, and the gem would be a new principle in learning that would improve my life.
…. We learn a lot from pain, you know, life I think is, itâs almost a trick. What happens is the second-order consequences are so often the opposite of the first-order consequences. In other words, the things that are really good for us donât feel good and the things that are bad for us feel good. You know, okay.
You eat the, you know, the tasty stuff is the stuff that is not probably good for you. The exercise that might be painful is the thing that you donât want to do, and you want to do the painful. So quite often pain or that is the opposite. It is a trick. Can you do the things that are really good for you? . And so those kinds of reflections I think we are very powerful and our experience really brought a lot of those.
Pain + Reflection = Progress
Napoleonâs definition of a genius is a person âwho can do the average thing when everyone else around him is losing his mind.â Morgan Housel felt that managing money is the same. To be a good long-term investor, we have to be able to manage our portfolio and navigate through various situations like the great companies we invest in. Indeed, we can learn about managing our investment portfolio from how CEOs in managing these great companies and are resilient.
âA smooth sea never made a skilled sailor.â
Franklin D. Roosevelt
Change is inevitable. Growth is optional.
John C. Maxwell
Unpredictable down cycles triggered by black swan events (Asian Financial Crisis (1997), September 11 (2001), the Sub-prime crisis in 2008 or Covid-19 (2019/2020)) will always happen.
Change is the constant. Growth is your choice.
Our ability to handle and ride over unpredictable down cycles is critical to doing well in long-term investing.
It is far easier to figure out if something is fragile than to predict the occurrence of an event that may harm it. Fragility can be measured; risk is not measurable (outside of casinos or the minds of people who call themselves ârisk expertsâ). This provides a solution to what Iâve called the Black Swan problem â the impossibility of calculating the risks of consequential rare events and predicting their occurrence. Sensitivity to harm from volatility is tractable, more so than forecasting the event that would cause the harm. So we propose to stand our current approaches to prediction, prognostication, and risk management on their heads.
Nassim Taleb, Antifragile: Things That Gain from Disorder
The world is and will always be filled with various economic, social, political and environmental problems. Grow up and face it, it will always be. The experts know these world problems and their severity well. Some may have been anticipating and warning about the crisis for years, during which the markets may have rallied. It is difficult to time the crisis and crashes well. No one has the crystal ball.
We do not have the knowledge and expertise to make perfect sense of the world, predict well and manage to avoid down cycles unscathed. We must be prepared to handle the unexpected and leverage it to our advantage. The companies we invested in may not have a good idea of how the situation will evolve and affect them too. They adapt and make the best of the situation.
Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on whatâs actually happening to the companies in which youâve invested.
Peter Lynch
âReturns only come to those who are willing to bear that volatility when others wonât. The volatility is the point.â
Josh Brown
Accepting that volatility is a characteristic of the markets can lead to a healthy change in our mindset toward long-term investing. It is an unavoidable part of how markets work as our investments move towards greater success. Investing is largely a mental game.
In the stock market, the most important organ is the stomach. Itâs not the brain.
On the way to work, the amount of bad news you could hear is almost infinite now. So the question is: Can you take that? Do you really have faith that 10 years, 20 years, 30 years from now common stocks are the place to be? If you believe in that, you should have some money in equity funds.
Itâs a question of whatâs your tolerance for pain. There will still be declines. It might be tomorrow. It might be a year from now. Who knows when itâs going to happen? The question is: Are you ready â do you have the stomach for this?
Most people do really well because they just hang in there.
Peter Lynch on what do you need to become a great investor?
Do not waste a crash: survive, learn and improve with each crash.
Take rein: Validate and tighten our investing to prepare for the worst
âLet me tell you something you already know. The world ainât all sunshine and rainbows. Itâs a very mean and nasty place and I donât care how tough you are it will beat you to your knees and keep you there permanently if you let it. You, me, or nobody is gonna hit as hard as life. But it ainât about how hard ya hit. Itâs about how hard you can get hit and keep moving forward. How much you can take and keep moving forward. Thatâs how winning is done!â
Sylvester Stallone, Rocky Balboa
Often, our planning may not cater for being wrong and big unexpected downward surprises. We are usually an optimist and cannot predict what, when and the severity of these downside surprises.
Everyone has a plan until they get punched in the mouth.
Mike Tyson
Often, conviction is a function of our buying price rather than the quality of the companies we invested in and their valuation (anchor bias). Conviction is boosted by rising share prices and profits and gets evaporated when stocks get crashed and losses swell. Our buying price has created an anchor bias upon us.
The market may get worse and worse. We may need to tighten our criteria and keep the portfolio on a tighter leash. Mistakes will punish us badly. As the business condition worsens, fewer and fewer companies will meet our criteria. We need to examine the financial results and that of competitors more closely to ensure that the companies we invested in are doing better than their competitors and the market in general.
This too shall pass but we have to make doubly sure that the companies we invested in will thrive through the challenging times.
Check out this post: Managing losses: A very important skill that investors and traders must have
The seduction of pessimism
This is the title of a chapter in Morgan Houselâs book, The Psychology of Money and a very important chapter.
Optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you.
Morgan Housel
For reasons I have never understood, people like to hear that the world is going to hell.
Historian Deirdre McCloskey
People tend to be pessimistic and sometimes, cynical. It is easy to see problems and many know what is ideal and perfect. Pessimists see everything as bad, follow the bad news and opinions (affirmative bias) as well as extrapolate them âlinearlyâ to further downside and forecast an aggravated situation. It sounds smart and logical. History is full of examples of things becoming bad and remaining bad. Turnarounds are difficult and miracles are rare. Hence, pessimism is more common, infectious, and persuasive. In a challenging period such as COVID-19, to be optimistic can be viewed as naive and insensitive; oblivious to risk.
âEvery group of people I ask thinks the world is more frightening, more violent, and more hopeless â in short, more dramatic â than it really is,â
Hans Rosling, Factfulness: Ten Reasons Weâre Wrong About the World â and Why Things Are Better Than You Think
Optimism begins well before it is obvious. Humans make significant progress in medical breakthroughs, technological innovations, and economic growth.
History shows that human ingenuity always triumphs in the long term, even when the short term looks precarious. With each crisis, optimism usually begins with identifying the problems, developing a plan, and executing the plan. It needs leadership, vision, determination, teamwork, time, money and resources etc. Progress at work is behind the scene; working hard to find solutions will take time. Each crisis is difficult and people doubt the resolve and capability of leaders to solve the problems. It is sometimes difficult to visualize the resolution of the crisis with the plan and to gauge the probability of success. There will be lots of challenges and failures; it will not be a smooth ride. Will it work?
Pessimism does not account for how people including ourselves can innovate, re-invent, and adapt to new situations for the better. It ignores the resilience and determination of people to help improve and turn around the situation.
We have choices. Do we want to do nothing and act helplessly with the challenges on hand and let the challenges take their own course? Proactive people focus their efforts on the Circle of Influence; focusing on what can control and take action, thereby enlarging their Circle of Influence and moving towards solving the problem.
Between stimulus and response, there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.
Viktor E. Frankl
Optimism is the best bet for most people because the world tends to get better for most people most of the time. Optimism is a belief that the odds of a good outcome are in your favour over time, even when there will be setbacks along the way.
âPeople often call me an optimist, because I show them the enormous progress they didnât know about. That makes me angry. Iâm not an optimist. That makes me sound naive. Iâm a very serious âpossibilistâ. Thatâs something I made up. It means someone who neither hopes without reason, nor fears without reason, someone who constantly resists the overdramatic worldview. As a possibilist, I see all this progress, and it fills me with conviction and hope that further progress is possible. This is not optimistic. It is having a clear and reasonable idea about how things are. It is having a worldview that is constructive and useful.â
Hans Rosling, Factfulness: Ten Reasons Weâre Wrong About the World â and Why Things Are Better Than You Think
A related post: Hereâs why the best investing opportunities are not obvious
Nothing was ever built on pessimism. Be a possibilist. Be the change and take responsibility. Optimism and the power of the human mind have continually pushed humanity to new heights.
A crisis is a terrible thing to waste.
Paul Romer
Often, the present looks bad, the future looks worse and the past looks good. Years, later, the present looks worse, the future looks worse and the past looks better. It is a case of hindsight bias. There are always opportunities,
Strong opinions, weakly (or loosely) held
It is an expression describing a framework developed by technology forecaster and Stanford University professor Paul Saffo. He described the process as:
âAllow your intuition to guide you to a conclusion, no matter how imperfect â this is the âstrong opinionâ part. Then âand this is the âweakly heldâ partâ prove yourself wrong. Engage in creative doubt. Look for information that doesnât fit or indicators that point in an entirely different direction. Eventually, your intuition will kick in and a new hypothesis will emerge out of the rubble, ready to be ruthlessly torn apart once again. You will be surprised by how quickly the sequence of faulty forecasts will deliver you to a useful result.â
It is a useful default perspective to adopt in the face of any issue fraught with high levels of uncertainty, whether one is venturing into a forecast or not. It is about the ability to embrace the power of definiteness and the power of openness concurrently. And when you act, you cannot be of two minds (cognitive dissonance). You have to commit and proceed boldly. But to understand the world, you have to constantly learn, adapt, and grow, which implies shifting direction.
The illiterate of the 21st century will not be those who cannot read or write, but those who cannot learn, unlearn and relearn.
Alvin Toffler
Knowledge is having the right answers. Intelligence is asking the right questions. Wisdom is knowing when to ask the right questions.
Marc Andreessen, the co-founder of Netscape and venture capital firm, Andreessen Horowitz, is often associated with the term. Being a venture capitalist, he is always looking for start-ups with great business ideas that opposed conventional wisdom. These can be very hard to execute and entrepreneurs must have strong tenacity to work their way through. However, as the world evolves, how will they react?
There are always companies with innovative products and business models trying to create a new S curve and disrupt the incumbents.
It is not about being right.
It is being open-minded and humble. Have conviction with flexibility. Be prepared to change and pivot.
The great investing myth (3): Macro investing & predicting the future
The great investing myth (6): Being right
The great investing myth (9): Being a contrarian
This too shall pass.
To those who have experienced Asian Financial Crisis (1997), the dot com bubble (2000/2001), September 11 (2001), and the Sub-prime crisis in 2008, it did feel bleak, doom and gloom and may not be able to feel optimistic out of the difficult situation.
The most important thing to remember during such times is that the market as a whole has a very long history of recovering from downturns. In fact, since 1928, the S&P 500 has fallen by more than 20% on 21 separate occasions. And every time, it eventually bounced back.
Of course, it can sometimes take months or years for the market to fully recover from a crash. Historically, it has always managed to rebound stronger than ever.
It was the best of times, it was the worst of times,
Charles Dicken, A Tale of Two Cities
it was the age of wisdom, it was the age of foolishness,
it was the epoch of belief, it was the epoch of incredulity,
it was the season of Light, it was the season of Darkness,
it was the spring of hope, it was the winter of despair,
we had everything before us, we had nothing before us,
we were all going direct to Heaven, we were all going direct the other way
–in short, the period was so far like the present period that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
