When I’m thinking clearly — and having my best ideas — my thoughts seem to flow. It feels amazing. I love it. But there will always be people who prefer not to think.

In my game they manifest as people who say ‘just tell me what to buy’. They demand (false) certainty — and are enraged by nuance or (honest) doubt. I do not write for them.

Rather I am writing for the people who have their own ideas. I am writing for people who ask not ‘tell me what to buy’ but rather ‘tell me what you are buying.’ I am writing for people on their own path — with their own flow.

And besides, I am more passionate about helping people who want to become better investors than giving stock tips. I have done this long enough now to see so many beginners flourish into deft investors who impress me — and themselves — with some flashy returns. And I have done this long enough to see how the sausage is made at the hot stock tip “all-in” hype shops.

I am particularly happy that I have readers who are smarter than me, and much better investors. They provide valuable feedback, and keep me motivated to improve. And I have readers from many fields; from just starting out, to retired.

After repositioning myself for a 1 in 100 year pandemic, I need to slow down to reflect. In the long term, it is holding the right stocks, in the right proportions, for long periods, that make for good returns relative to risk. And it takes time for any investor to know the right stocks to hold in their own portfolio. I’ll get to that; but first I want to tell you about the Pygmalion Effect.

Pygmalion Effect

Which of course brings me to the most important point I wanted to make today. It is at times my torturer but also my muse.

It is the pygmalion effect.

To quote Ovid, which I have abridged from the original to make less verbose:

One man, Pygmalion… chose to live alone, to have no woman in his bed. But meanwhile he made, with marvellous art, an ivory statue, as white as snow, and gave it greater beauty than any girl could have, and fell in love with his own workmanship…

Could this be flesh, or was it ivory only? No, it could not be ivory… He pays her compliments, and brings her presents such as girls love, smooth pebbles, winding shells, little pet birds, flowers with a thousand colours, lilies, and painted balls, and lumps of amber…

Where incense burned, and, timidly, Pygmalion made offering, and prayed: ‘If you can give All things, O gods, I pray my wife may be — (He almost said, My ivory girl, but dared not) — one like my ivory girl’ and golden Venus was there, and understood the prayer’s intention, and showed her presence, with the bright flame leaping thrice on the altar…

Pygmalion came back where the maiden lay, and lay beside her… and she seemed to glow… and felt the ivory soften under his fingers, as wax grows soft in sunshine, made pliable by handling…

It is a body! The veins throb under the thumb… The lips he kisses are real indeed, the ivory girl can feel them, and blushes and responds, and the eyes open at once on lover and heaven, and Venus blesses the marriage she has made….

In this story, Pygmalion believes so strongly that his ivory statue is real that a god makes her real, and this story is used as a metaphor to describe a real life phenomenon where if people have high expectations of you, you will achiever better results.

This feature of humanity was first proven in the academic literature by a study called: Pygmalion in the classroom : teacher expectation and pupils’ intellectual development. This study revealed the observer-expectancy effect, and how it impacts reality.

After administering an IQ test to all children, teachers were told that certain of their pupils where ‘bloomers’ who would make more progress throughout the year than the rest, despite the fact these bloomers were statistically no more intelligent than the others. This lead the teachers to expect these bloomers to outperform the rest.

And of course, that is what happened.

But beyond this study I think that the pygmalion effect is never more impactful than when you internalise the expectations. When I write, I have certain expectations of myself — and of the reader. Here they are:

  • I expect that you and I will both be honest with ourselves about our success and failure and try to learn from both.
  • I expect you will develop pockets of deep knowledge as an investor, and take the time to follow at least a few companies closely over long periods; as a learning experience if it turns out there is no profit to be had.
  • I expect that you will beat the market and the majority of fund managers as an investor, by taking advantage of your nimbleness, independent thought, and areas of expertise.
  • I expect you will take pride in using your skills to improve your own quality of life, the quality of life for those you love today, and the quality of life for future generations on this planet.
  • I expect you to avoid ‘hail Mary’ risk and ensure you and your family always have what you need.
  • I expect that you will become a better investor over time, over the course of your investing life.

And all this leads me to my question. How can I help? I love receiving emails from Supporters; whether it be a disagreement with my view, a question about a company, a question about analysis or a question about the mechanics of investing; I am always keen to hear it.

Getting To Know A Business Takes Time

As a general rule, inactivity is a good thing for a long term investor. And despite the massive flurry of repositioning I’ve undertaken this year huge chunks of my portfolio date from many years ago. Of my dozen or so largest individual shareholdings, I have followed each of them either since their IPO, or for at least 5 years. When I’m approaching 40, I hope I’ve known many of my holdings for 10 years.

With such a huge investment of time into understanding a business, I want to be fairly discerning about which businesses I really invest that time into. As a result, I reserve a significant part of my portfolio for experimenting with new ideas. These ideas are necessarily lower conviction but they can help me identify companies that are well worth following.

My writing is aimed at letting you learn vicariously through me. I do my best to let you see why I do what I do. And if you think my mistakes are foolhardy (some are) and my opinions wrong (some are) then you are — I hope — well equipped to disagree with me and act accordingly.

Find your own flow.