On their research process, mental habits, and time management

Recently, I read this book titled “Free Capital”.

It covers the mental habits and practices of 12 private, full time investors.

If you've always wanted to know how a full time investor spends his/her time, how they think, what they struggle with...

Then you’ll enjoy this book.

Here’s what these 12 full time investors have in common:

• They all manage their own money

• They’re independently wealthy

• They started with a small capital base

Here’s 7 lessons I learnt from them:

1. They make their own notes

They write things down, even if they never read them again.

Because the magic of making their own notes lies in the process of doing it, not in the actual notes themselves. Making notes helps them discover what they really think about a company.

From Vernon, one of the private investors in this study:

“The notes help me to maintain mental consistency over time. They are a stabilizing influence when some news comes out which might tempt me to trade impulsively.”

2. Use of message boards

Several (but not all) of these investor use online message boards and forums.

Being a private investor can be a lonely journey. So they bounce investing ideas and network on these forums. But it's not just a cure for loneliness. Typing their ideas publicly forces them to elaborate on their arguments.

This helps the knowledge "stick".

The more they explain something in their own words, the more connections they create with their prior knowledge. So they can remember it for a longer time.

3. Think in terms of return on time invested

The scarcest resource for successful investors is not money, but attention.

For every action they choose to take, there is a trade off. So they ask themselves this question: "What can I choose to neglect and overlook?"

This forces them to hone in on what is truly important.

It increases their return per unit of time.

“Time is a limited resource with strongly diminishing returns. The first hour you spend researching a company is much more important than the tenth hour."

4. Aware of their biases

The best investors know how to balance defence and offence.

They know when to stop researching an existing position, and move on to another company. New information may make you more convicted... But it doesn't always make your judgment more accurate.

A quote from an investor in the study:

"Many investors are management groupies. They spend too much time on their favourite companies, posting on bulletin boards and going to AGMs. They are squandering time which would be better spent looking for new ideas."

5. The goal of research is NOT to know everything about the company

Every investigation has a time opportunity cost.

Your aim is NOT to check all possible hygiene factors. But to check enough to reduce your error rate to an acceptable level.

Psychological research suggests:

In many contexts, decisions are best made with no more than 5-7 points of information. Any more information beyond that does not significantly improve decisions.

It may even degrade them.

6. They focus on what's knowable AND important.

Warren Buffett talks about this.

In investing research, there are 2 types of information:

- Important

- Knowable

Focus on the intersection of BOTH.

You don't need to know everything about a company to make money from it.

“Focus on things which are knowable: That is, things where research can plausibly give you superior insight. For example, the microeconomic advantages of a particular company. Ignore things which are not knowable, for example, general macroeconomic predictions."

7. They search for truth, not agreement

An investor’s thinking should be focused on a search for the truth, rather than supporting prior affiliations.

The best investors seek for disconfirming evidence. They do not allow where they sit to determine how they think.

From a private investor named Bill:

"It's always easy to think of reasons to buy a company. That is what most tipsters do. To make good decisions, you need to look actively for reasons not to buy a company. And then invest only in those where you can live with those reasons"

*****

If you like what you read, then you should check out my viral tweet on how to find 10-100 baggers.

I share the key investing concepts that allowed me to grow my portfolio by over 450% in the last 2.5 years.

Feel free to drop me a message too if you have questions or feedback. Happy to chat.

-Max

.

Privacy policy and terms: It’s my passion to build a strong community centered around the investing world. Every day we are building and strengthening everything we do to provide a better experience for you, as a part of our tribe. As such, we are strongly committed to protecting your privacy and providing a safe online experience for all of our visitors while offering a high-quality user experience here our website(s). We know that you care about how the information you provide to us is used and shared. We have developed a Privacy Policy to inform you of our policies regarding the collection, use, and disclosure of Information we receive from users of the Website.

This Privacy Policy, along with our Terms & Conditions, governs your use of this site. By using this website and our other web presences, or by accepting the Terms of Use (via opt-in, checkbox, pop-up, or clicking an email link confirming the same), you agree to be bound by our terms and this Privacy Policy. See our Policy carefully (by visiting our website), as it affects your rights and liabilities under the law. If you disagree with the way we collect and process personal and non-personal information, please do not use this website. This Policy applies to this website as well as all webpages Company hosts. It regulates the processing of information relating to you and grants both of us various rights with respect to your personal data. It also informs you of how to notify us to stop using your personal information. You may be located in a country that has laws which are more restrictive about the collection and use of your personal information. In our policy, you will read that you may not change, modify, delete, display, transmit, adapt, exploit, or copy for distribution or sale any information, material, trademark, or copyright on our Sites. You must obtain written permission from us or any other entity who owns intellectual property on the Sites before you may publish, distribute, display, or commercially exploit any material from the Sites. By using the Sites, you agree to abide by all copyright notices or other posted restrictions.

The information contained in or made available through our Sites (including but not limited to information contained on message boards, in text files, or in chats) cannot replace or substitute for the services of trained professionals in any field, including, but not limited to, financial, medical, psychological, or other matters. Neither we nor our partners, or any of their affiliates, will be liable for any direct, indirect, consequential, special, exemplary or other damages that may result, including but not limited to economic loss, injury, illness or death. You alone are responsible and accountable for your decisions, actions and results in life, and by your use of the Sites, you agree not to attempt to hold us liable for any such decisions, actions or results, at any time, under any circumstance. If you have provided personal, billing or other voluntarily provided information, you may access, review and make changes to it via instructions found on the Website or by replying to our email here. To manage your receipt of marketing and non-transactional communications, you may unsubscribe by clicking the “unsubscribe” link located on the bottom of any related email from the Company. Emails related to the purchase or delivery of orders are provided automatically – Customers are not able to opt-out of transactional emails. We will try to accommodate any requests related to the management of Personal Information in a timely manner. However, it is not always possible to completely remove or modify information in our databases (for example, if we have a legal obligation to keep it for certain timeframes, for example).