Some thoughts on journaling, the newsletter, learning, and investing
I want to start off with some housekeeping. I will take some time off from the newsletter in December. Later this month, I will be traveling with my family back to the states. I don’t want to have impending writing deadlines hanging over our holiday festivities, so I won’t publish again until after the new year. It should be a good time to reflect and plan for the future!
I had a topic in mind to write about this week, but then a new one popped up. Circumstances and timing brought it all together in my mind, almost fully formed over the last several days. Let’s see how it goes!
Most of you know that I have “journaled” for years - after all, the newsletter title is The Investors Journal. I put journaled in quotes because it sounds so high-brow. Like, I’m going into the study with my pipe and scotch to write out my wisdom for the day. My process is more like scribbling some notes in my excel file about why my latest investment went bust. Or why I like an idea because, with two kids and a busy family life, I can hardly keep a thought in my head for more than ten minutes. But it has gotten more effective over the years. More by brute force than any planning on my part.
So I was particularly excited to discover Journalytic. This is an investing journaling app that was developed by Jake Taylor of the Value After Hours podcast fame (amongst other notable accomplishments, like running his own fund). I don’t know him, but Jake just seems like a nice guy that you would love to sit down and have a coffee with. He’s @farnamjake1 on Twitter if you are interested. And no, this is not a sponsored post. I’ve just tried the product for a couple of days and have really enjoyed it. I think it will help kick my journaling habit to the next level!
This got me thinking about journaling and how much it has helped me over the years. Besides containing all the raw material for this newsletter, it has helped improve my investing immensely. First and foremost, it helps with accountability. If you write down that you like X investment for 1), 2) and 3) reasons; and then that investment does well, that’s great feedback. If it actually went up related to your reasons, great! If it went up, but not for your reasons, then you got lucky - and that’s good feedback also. When I would just rely on my memory, I would often see a successful outcome and just assume that I was right. So connecting the loop is incredibly important. And the feedback cycle can be very long - sometimes years before you find out if you were correct. Who can remember that far back? Not me. If you are going to be a serious investor or even a hobbyist investor, I recommend that you pick up the habit of journaling about your investing. If you do it regularly, it would be hard not to improve your process.
I’ll share with you one example of how my process changed as a result of my journaling. First, one thing you should understand about me: I am a terrible trader. Even though I am a long-term investor, every time I sell a stock, it inevitably runs up right after I sell. Or it drops right after I buy. Every. Single. Time. I’ve learned to accept my poor timing. And this, combined with my innate stubbornness, has encouraged me to be a long-term-oriented investor. But I consciously shifted my investing strategy years ago because of… journaling. For years, I tracked all my investing decisions, including stocks that I sold, in my investing journal. I dutifully recorded what I thought when I sold. Somewhere along the line, I looked back at some of my sales. I noticed that a few of the companies I sold went on to do phenomenally well. Not all of them, of course, but enough to notice. I tried to mine my data, and although it was unscientific, I teased out several interesting lessons:
I often sold a company after it had run up. Sometimes in the 50-100% gain range, I sold out of my full position, regardless of the potential for the company going forward.
I sometimes sold out of boredom. If a stock price had gone nowhere for a while, but the company was still executing, I sold to buy something better.
Sometimes nervousness about the market would lead me to sell to “raise some cash”. (Now cash management in investing is an important thing. I’ve written about it before, and I will probably write about it again because I have a bit of a different view than many on cash in your portfolio.) This was a frequent enough theme that I was concerned about how it affected my portfolio.
These were some interesting observations for me, and the first two led me to adjust my investing philosophy significantly. I’ve written previously that I originally approached investing from a very numerical and quantitative standpoint. So I frequently looked for investments that were undervalued by 50% or more. My analysis led me to sell when these businesses approached fair value. This was often realized on a timeline of 1-3 years. The result was a number of sales resulting in 50-100% gains. I was basically just doing what my analysis told me to do. But a portion had gone on to do very well. I basically took a double out of a company that went up 5X, 8X, and sometimes 10X. I was humbled by the number of times I discovered good companies and sold them far earlier than the business performance would dictate.
These realizations allowed me to extend my investing horizon. If I found a good company, and it continued to execute, then I needed to give it the time to run fully. In my portfolio now, I have owned several companies for up to 8 or 9 years. They are some of my largest and most successful positions (and one or two are small and not yet successful.) I would not have realized the mistakes I was making if I didn’t have my journal to look back on and study my investing habits. I look forward to continuing my habit. Hopefully, it will continue to yield interesting insights into my investing process. I hope journaling helps you in your investing as well.
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