Predicting: We as individuals always want to predict about future and mostly feel good when the prediction turns out to be true “See, I told you so.” When it comes to investing, most of the junta is focused on predicting what is a company’s EPS going to be next quarter, predict its sales next month or a year from now on, predict stock’s price from a yearly perspective to as near as daily (intra-day) or hourly perspective.
While some folks can predict these accurately which makes them insanely popular and are treated as “God-like”. Their predictive capabilities look extremely optimal in that moment. Most times, however, the predictions do not turn out to be true. They miss their predictions by a huge margin. Obviously, the misses are not talked about, or rather brushed aside – it is the winners and winning predictions which are talked about vividly and which steal the limelight. (Who wants to talk about past sins predictions anyways?)
Most times, however, it is not prediction which wins over time, its Positioning. Positioning in terms of having the right investing process – selecting companies having pricing power, optimal or zero debt, ethical promoters, businesses, and industries having growth at reasonable valuations – is almost guaranteed to win!!
Obviously, Positioning may take time to play out, may be couple of months to years!! This would mean that you as an Investor may look very foolish in the short-term. After all, as Howard Marks had very succinctly put it,
“A hugely profitable investment that doesn’t begin with discomfort is usually an oxymoron.”
While the outcomes being generated by Predictors as compared to Positioners may look genius in the short-term, however, if you want to position successfully, you need to stop comparing your outcomes as a Positioner with a Predictor. Luck has its role in Investing and outcomes wherein luck plays a big part should be viewed differently. Frankly, easier said than done, especially when incentives/jobs/bonuses are all geared to generate short-term quick sprints!!
Who remembers the names of marathoners, anyways?
Last bit of advice: In order that you Position yourself for Investing success, you need to have a strong stomach, long-term capital, little or no use of leverage, staunch reliance on your investing processes and value, and obviously be correct (ultimately)
Disclaimer: Please note that these are my personal views. While I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.
Great Post Vikas.
Form the last couple of years I have started looking at things from the point of ignorance, i.e. I believe I don’t know what’s going to happen in the future, I can’t predict the quarterly or annual results of companies or how an industry or sector will pan out. Still, we have to invest, so I chose to invest in compounders with a stable business, competitive advantage good management and I avoid investing in special situations, turnaround, or deep value stocks. I will better hold a portfolio that generates Index plus 200 BPS vs a portfolio which may or may not generate Index plus 1000 bps over a long period of time.