What caught my eye this week.
A key trait as an investor is the ability to change your mind. That’s because we’re all wrong about stuff, all the time.
I don’t mean you that should flip stocks on a whim, or pick-and-mix this season’s asset allocation like you’re choosing a t-shirt for the beach.
Staying power is crucial, whether you’re a passive investor or you’re chasing market-beating returns for your sins.
But being able to change your mind is equally vital.
It’s estimated the best stock-pickers only get about 60% of their calls right.
The high-speed traders at Renaissance Capital [1] reportedly generated billions by being right just 51% of the time.
If you want to make money when you’re so often wrong, it helps to admit it.
What would change your mind?
I love the Financial Times and I’m a very satisfied subscriber.
But boy have its pundits been wrong about Tesla.
For the better part of a decade I’ve read snarky [2] comments [3] in the FT about Tesla’s valuation, its shareholders, and the showmanship of Elon Musk.
Some concerns were valid, sure. But when during Tesla’s ascent should the skeptics have upgraded their thesis?
When Tesla shipped its first electric car?
Maybe when it rolled out the mass-market Model 3?
Or when Tesla turned profitable?
Or when it achieved its goal in 2020 of producing 500,000 vehicles in a year?
Now Tesla is valued at $1 trillion. The FT covered [4] that. But its scribes couldn’t resist joking that the new 100,000 car deal [5] with Hertz that drove this latest price spurt was mostly about burnishing the latter’s meme credentials.
In a more balanced piece yesterday the paper conceded [6]:
Out of the Musk limelight, Tesla has been building an increasingly solid business.
Good for them. Griping all the way to $1 trillion wasn’t a good look. But better late than never to think again.
Sinking feeling
At least journalists don’t have their money on the line.
Hedge funds have lost billions shorting Tesla stock.
It was always a dumb short – as I mentioned in my post [7] on my own Tesla woes – because Elon Musk had super-rich Silicon Valley friends who’d said they’d back the company with capital in a heartbeat.
Some of those shorting Tesla even called it a fraud after it made what’s become [8] the best-selling premium sedan in the world. At that point they should have admitted they didn’t understand what was going on, and stood aside.
There’s no shame in it – and it’s easier on your wallet.
Tesla has a mammoth task ahead, and even as a shareholder I agree its valuation looks stretched. But you have to appreciate everything it’s doing right before you can bet against what could go wrong.
If you don’t understand [9] something then you shouldn’t be shorting it.
Big mistakes
All this is more easily written than done.
As a naughty active [10] investor with thousands of companies to misunderstand, I get six things wrong [11] before breakfast.
Yet passive investors can go off the rails, too.
Some concede they know no better than the market and so pursue an indexing approach – a noble strategy – but then call bonds a bubble waiting to burst for a decade, or shun US stocks for years, seeing them as overvalued.
One huge danger with these big macro calls is that the sunk cost of being so wrong so far makes you desperate to eventually be right to fix things. Such mind games can take your portfolio far away from consensus.
Conversely, another risk is actually admitting you got it wrong, changing position, but doing it so late in a bout of market mania that you end up taking all of the pain of a correction with little of the previous gains.
Avoiding using your feet for target practice like this is another subtle benefit of an automated approach like our Slow & Steady Passive Portfolio [12].
Wrong way, right turn
None of this is to say that the market doesn’t get it wrong sometimes too.
Over on his Compound Advisors [13] blog this week, Charlie Bilello posted a great selection of times when the wisdom of the crowd proved more witless.
Of course those examples are so striking because we know how they ended.
Those investing on the way up – or down – had no idea where the story would finish. All they saw was a one-way ticket, right until the road ran out.
So for my part I strive to be ready to change my mind on a dime. ‘Strong convictions, weakly held’ is the way the cool kids put it.
If that’s difficult with investing, then take heart that at least it’s easier than with politics or as it transpires epidemiology…
Have a great weekend, and don’t forget that business with the clocks!
From Monevator
Making monthly repayments on a repayment mortgage is a form of saving – Monevator [14]
How to improve the 60/40 portfolio – Monevator [15]
From the archive-ator: Investing for 100-year-olds – Monevator [16]
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1 [17]
OBR puts permanent hit to GDP from Brexit at 4%; worse than Covid – BBC [18] & Guardian [19]
Deal to rescue seventh largest energy supplier Bulb in doubt – Guardian [20]
Budget: key points at-a-glance – BBC [21]
Budget: what you need to know – Be Clever With Your Cash [22]
Budget: the small print – Which [23]
Budget: how does it add up for me? [Calculator tool] – Guardian [24]
Budget: reality bites as Tories embrace big-state, fiscal conservatism [Search result] – FT [25]
Budget: millions will be worse off in 2022, says IFS – BBC [26]
Budget: all the official policy and spending documents [PDFs] – GOV UK [27]
[28]
Crippling shortages and rising prices hit UK economy [Search result] – FT [29]
Products and services
The days of super-cheap mortgages are ending – Guardian [30]
Games consoles, laptops, and smartphones in short supply for Christmas – ThisIsMoney [31]
Portfolio Charts has had a spruce-up – Portfolio Charts [32]
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor [33]
Junior ISAs vs Premium bonds: which wins over 18 years? – ThisIsMoney [34]
Crypto wallet Coinbase goes offline for hours, again – Yahoo Finance [35]
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade [36]
Junior Isas are ten. How much is your child’s worth? [Search result] – FT [37]
Homes for hosting a Halloween party, in pictures – Guardian [38]
Comment and opinion
Risking, fast and slow – Of Dollars and Data [39]
The most important chart in investing – Banker on FIRE [40]
How to improve your finances, no matter how messy they are – The Cut [41]
Let the market worry for you – The Irrelevant Investor [42]
Board, not bored – Quietly Saving [43]
“I spent 44 years studying retirement. And then I retired…” [Possible paywall] – WSJ [44]
Q&A with the author of Trillions [45] asks: why is stock-picking getting more popular despite the evidence that index investing is best? – CNBC [46]
Is hyperinflation on the way? [No.] – Pragmatic Capitalism [47]
Rich or wealthy? [Podcast Q&A with Morgan Housel] – Art of Manliness [48]
How funds pick their benchmarks [US but relevant] – Advisor Perspectives [49]
The proposed US billionaire tax: worst tax ever? – Musings on Markets [50]
Naughty corner: Active antics
15 favourite investment patterns – Intrinsic Investing [51]
One skill that sets an investor apart is creativity – Enterprising Investor [52]
A history of wealth creation in the US equity market – Alpha Architect [53]
A deep dive into UK retailer cum distribution platform Next – John Kingham [54]
Profitability and value together drive a stock’s returns – Verdad [55]
A bit more on Bitcoin mini-special
The bull case for Bitcoin – Morningstar [56]
Wealth management money will come for crypto – A Wealth of Common Sense [57]
An excellent primer on why the new Bitcoin futures ETF is best left to short-term traders – Morningstar [58]
A momentum trading strategy for Bitcoin – Dual Momentum [59]
Covid corner
Public support for ‘do everything possible’ at a record low – New Statesman [60]
Are UK daily cases set to plummet, even without Plan B? – BBC [61]
Mask wearing at the heart of the British Covid divide [Search result] – FT [62]
How does Covid end? The world is watching the UK to find out – Guardian [63]
Kindle book bargains
How Money Works: The Facts Visually Explained by DK – £1.99 on Kindle [64]
Island on the Edge by Anne Cholawo – £1.29 on Kindle [65]
Quit like a Millionaire by Kirsty Shen and Bryce Leung – £0.99 on Kindle [66]
Back to Nature by Chris Packham – £1.99 on Kindle [67]
Environmental factors
‘Planned’ fuel duty rise frozen for 12th year in a row [On eve of COP 26…] – Independent [68]
Make or break: here’s what’s at stake at COP 26 – Guardian [69]
How one woman protected millions of acres – Reasons to be Cheerful [70]
Decarbonization by the numbers [Podcast] – Exponential View [71]
African elephants are evolving to lose their tusks – Smithsonian [72]
Tycoons created the dinosaur – Nautilus [73]
Unfreezing the ice age: the truth about humanity’s deep past – Guardian [74]
Off our beat
How to level up – Raptitude [75]
Job-seekers are ghosting would-be employers as the tables are turned – Slate [76]
Twenty years ago Grand Theft Auto III changed games forever – The Ringer [77]
The grim threat of ‘spiking’ on a night out – BBC [78]
Internal versus external benchmarks – Morgan Housel [79]
The last great mystery of the mind – Guardian [80]
In conversation: Dave Grohl – Vulture [81]
And finally…
“Louis Bachelier is arguably the index fund’s intellectual godfather. But economics and finance are fields where everyone stands on the shoulders of giants.”
– John Wrigglesworth, Trillions: How a Band of Wall Street Renegades Invented the Index Fund [82]
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