Being Wrong
Thoughts on how to change your mind
One of the reasons that I so much like investing is that it is a constant source of self-discovery. Putting your money at risk based on your analysis and motivation distills your thinking down to its essence. Your emotions show up. Your biases show up. Everything that makes that engine in your head go shows up in your investing process.
Here is a short list of things I’ve (re)learned about myself from investing:
I like to be right
I’m stubborn
These traits can be an advantage. Since I enjoy being right, this can lead me to do deep research in studying a company or an industry. Being stubborn can be a great asset as a long-term investor. It gives you the fortitude to hold during difficult times. It helps practice patience in seeing your thesis play out over time.
But like many strengths, they can also be weaknesses. It can be hard to admit that I am wrong. And being stubborn can compound errors if I won’t admit mistakes. These are aspects of my investing that I am trying to improve. The phrase, “strong opinions, weekly held,” springs to mind. But that’s not it entirely. Still, it is a good approximation of what I am working on.
I have an example to illustrate this, and of course, it begins with a mistake:
A Beautiful Mistake…
A little more than a year ago, I bought a company called American Virtual Cloud Technologies (AVCT). They operate in an industry called “unified communications as a service,” or UCaaS. These companies provide web-based voice and data services. It is an interesting industry, and I made several successful investments in the space previously. I won’t get into all the thesis details, but I liked the company for several reasons:
It was in an industry that I knew about and thought I understood.
It had a new CEO who I thought could catalyze change.
I suspected that the company was going to be put up for sale.
I highlighted that last point because - in hindsight - that was the real reason I wanted to invest in the company - a quick pop due to a buyout. The rest of the reasons were just rationalizations to convince myself it was a good idea. It had warts, as all companies do; it was a former SPAC (special purpose acquisition company) and had significant debt. Two situations I generally don’t invest in. And here I was, investing in both at the same time. And I made it a significant position right out of the gate.
I consider this one of my “beautiful mistakes” because I quickly realized I had made an error. I owned the company for about six weeks. The results were poor out of the gate, so I sat down, looked through all my notes and research, and realized my error. And despite a 30% drop in price, I sold as soon as I knew I was wrong. Here’s a little picture of my adventure:
The loss stung. I felt stupid. But I didn’t let my error compound. This is something I did in the past. I held on to positions where my original thesis was incorrect, hoping things might turn around. They rarely do.
Selling was the right decision - no matter what the stock did afterward. I was wrong in my assessment and corrected it quickly. Incidentally, here’s what happened after I sold:
The decision turned out to be correct in an absolute sense as well. If I were smarter, I would have turned around and shorted it.
I share this story because I am continuing to work on admitting when I am wrong and moving to correct things before they cause damage. It is very much a work in progress.
