Happy New Year Investor!
We hope you managed some well-deserved time off in recent weeks, both from your usual vocation as well as with your investing. Not that we’re advocating for complacency, but it’s often useful to take a step back every now and then.
Partly because it’s important to have some time for a broader reflection on your investment goals, style and positioning, but also because investor burn-out is a challenge even the most passionate investors face from time to time. Not least when the market is making it hard to score decent returns.
So as we head into 2024, and with the next set of company results on the horizon, now is a perfect time to contemplate the following:
What mistakes did you make in 2023?
This isn’t about what stocks went up or down; no one can hope to reliably anticipate short term movements. Rather, what companies failed to deliver against your general expectations? Moreover, which saw a material deterioration in their longer-term outlook?
It’s important here to recognise that there’s a big difference between negatives that could reasonably be seen as predictable (without the benefit of hindsight), versus issues that were more a consequence of bad luck, or just the general vagaries and challenges of business. There’s no shame in acknowledging a genuine error of judgement — indeed, those that can own their mistakes tend to achieve far better results than those that are more concerned with ego preservation.
While painful, honest reflection on your missteps are valuable opportunities to grow as an investor. The only real mistakes are those you fail to learn from.
That was then, this is now
Oftentimes there may be no meaningful change in the business or its prospects, but the investment merit can still change radically if the market is now pricing things very differently. This not only impacts the value proposition of individual holdings, but also how they are weighted within your broader portfolio.
While you don’t want to fiddle too much, it is worth ensuring your biggest exposures are to your highest conviction and best-value ideas.
Speaking of which…
Do you need to prune?
It tends to be much easier to add new stocks to your portfolio than it is to remove existing ones, and this can lead to portfolio bloat. Assuming your various holdings aren’t too tightly correlated, you don’t really need much more than 15-20 stocks in your portfolio — that’ll pretty much give you the full benefits of diversification, ensures you don’t suffer too much in terms of opportunity cost, and makes your life a whole lot easier.
Culling the lower quality ideas from your portfolio can go a long way to improve your total average return.
What is your north star?
Solvetheriddle penned an excellent post recently on his investing “north star” — the key attributes he is looking for in an ideal investment.
We’ll all have our own ideas here, and there’s no one right way to go about it, but as we grow and evolve as investors it can be extremely valuable to spell out the core principles of your particular investment approach.
The market is full of distractions, so this can help ensure you stay on the straight and narrow.
Onwards & upwards!
Whatever 2024 may bring, it’ll doubtless be a wild ride. It always is.
But we’re excited to see what opportunities (and risks) the Strawman community can uncover, and look forward to sharing lots of valuable and practical insights along the way.
Lets go!
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