With the blood vessels in my face constricted and my nerve endings now forcefully awakened, I grab a portable lamp, my book, and a laptop and migrate to the kitchen. The first hour or so of my day is usually spent reading and drinking coffee. Some time passes.

As the last chapter of my reading time concludes, and the sun begins to illuminate the city through my kitchen window, I perch myself on the counter. Opening my MacBook, I discover that vast swathes of the internet are down. The culprit? Amazon Web Services. It’s the type of incident we’ve all experienced before. Within a day or two, it will all be over.

Later that morning, I was relieved to stumble across firm evidence that the world was steaming ahead as usual. While cloud service outages come and go, you can always count on politicians who lack a basic understanding of something to try and dictate how those things should work.

This time, it was the turn of US Senator Elizabeth Warren. “If a company can break the entire internet, they are too big. Period”, she proclaimed. Promptly followed up by her catchphrase, “It’s time to break up Big Tech”.

I won’t be wasting my breath explaining why this is a delusional take this morning. Rest assured, Elizabeth will reappear later in this text.

Statements like these are big, bold, and attention-grabbing. They make great headlines because they exert a magnetic attraction, sucking both sides of the peanut gallery into the centre with a calamitous BANG like protons in a Hadron Collider. The protons, in this case, are the vocal proponents and opponents to the proposed solution.

This comment from Senator Warren reminded me of something which occurred days earlier.

Browsing through the internet, I noticed an old high school friend shared a video of someone complaining about the cost-of-living crisis in the United Kingdom (UK). My curiosity got the better of me, and I watched it. The man who goes by the pseudonym “Tattooed Dave” complains that the energy companies are earning ‘record breaking profits’ in the wake of rising energy prices. Most ludicrously, he proceeds to single out Tesco, the largest supermarket in the UK by market share and sales.

“The ****ing supermarkets are making record breaking profits. Tesco could pay every one of their employees a £10,000 a year bonus. They would still make a profit”.

A few unfounded soundbites presented as “facts” and a couple of swear words later, the video ends. My brain cells begin the slow process of regeneration.

The video implies that Tesco is taking advantage of the UK consumer and is directly benefiting from the fragile and inflationary environment post-pandemic. We’ll get to why that isn’t true in a second, but this isn’t a phenomenon unique to the UK.

US Senator Elizabeth Warren (told you) has been vocal in her belief that US supermarkets are to blame. In a 2024 hearing, her opening statement claimed that “Grocery prices are up because of good old-fashioned corporate price gouging”. It’s true that, pretty much globally, grocery prices exploded during the pandemic, and in most cases, they’ve continued going up even though the pandemic is now behind us. Warren has a track record for spinning encapsulating headlines that lack nuance. It’s what sells newspapers and attracts the confirmation-bias-seeking crowd. The same goes for the other side, too, don’t get me wrong.

Seeing people I know, many of whom are smart and capable, share nonsensical information like this makes me contemplative. Why do so many people my age, young people, have such anti-private-sector views? Why do they so easily succumb to this narrative that capitalism is “bad”? There are cultural, educational, and structural reasons, all feeding off each other.

I don’t know the answer.

Perhaps it’s because the private sector is an easy scapegoat for politicians and the media to blame for the economy’s problems. Ironically, the sitting government appears to do everything in their power to squash the motivations and prosperity of private enterprises.

Part of it is education, or rather, the lack of it. It is estimated that as few as ~25% of UK adults actively invest in the stock market as of 2024, compared to more than 50% in the United States. It’s no secret that the citizens of the UK are relatively risk-averse compared to their American cousins. When you don’t own equities, you don’t see capitalism as your system. You see it as someone else’s.

With respect to household wealth, the US stands head and shoulders above the UK and EU, with ~35% of household financial assets devoted to listed equities, compared to 10% for the UK and Euro Area.

The culture around risk and aspiration in the UK is complicated. Ambition often feels like a character flaw. It can be likened to the famous ‘crabs in the bucket’ maxim, where anyone climbing becomes a target for being pulled back down. Pair that with low wages, swathes of red tape, and you have a culture that sneers at success instead of celebrating it.

One need only skim the headlines of the Financial Times to see the symptoms. Countless UK-listed companies are being snapped up on the cheap by American private equity, others shifting listings to New York, and CEOs quietly relocating for tax sanity. The message is clear: ambition enjoys a warmer climate elsewhere.

I’ve been reading Andrew Sorkin’s ‘1929: The Insider Story of the Greatest Crash in Wall Street History’. It recounts one of Winston Churchill’s visits to the States in 1929, where he noted that, unlike in Europe, “the social life of the United States is built around business”. It’s a sentiment that feels as true today as it did nearly a century ago. The UK still can’t decide whether it admires that or despises it. Some things never change.

I digress.

A lot of ordinary citizens find arguments like “Tesco are the bad guy” encapsulating. We can pontificate on exactly why. If you lack a basic understanding of finance, it becomes significantly easier to believe this at face value because the ability to exercise critical thinking towards the matter is absent. This is true for every complex subject matter.

Take the health and fitness industry as one example. The majority of the public is not versed in the disciplines that would provide a more critical lens through which to discern claims. They are not nutritionists, dieticians, biologists, and so on. They are prone to believing claims at face value. In the 70s and 80s, the in-vogue war cry of the health industry was that “fat is bad”. As the consensus shifted towards the reality that, in fact, not all “Fat” is bad, the stigma of the word “fat” still lingers decades later. Various other food groups have transformed from villains to superheroes over time. Eggs and their “link” to cholesterol being one.

It sounds unfair that these huge companies earn billions in profits while the average household is blighted by ever-increasing grocery costs.

Big Media know this, and capitalise on it. Despite knowing that absolute values tell a one-sided story, they push this narrative onto the public, which, now more than ever, lacks the desire to interpret headlines via critical thinking. In practice, this means they read the headline, consume the Short-form video or the soundbite, and they assess whether this confirms their prior beliefs. If it does, it becomes a new fact in their arsenal. If it doesn’t, they simply ignore it.

Rarely will someone explore the merits of the claim.

The ****ing supermarkets are making record breaking profits

Let’s now address Tattooed Dave’s claims that “The ****ing supermarkets are making record breaking profits”. I’ve seen this exact headline blasted across various news outlets before, so we can be assured that Dave picked up this argument from the media cycle and has decided to run with it. Due to a dwindling number of publicly traded large supermarkets in the UK, and the fact that he singled them out, we can focus on Tesco.

Spoiler… the headline is false.

Tesco are enjoying record sales. The £69.9 billion the company generated in fiscal year 2025 represents an all-time high and a 2.5% increase on the prior year. Compared to the period ending February 2020 (Tesco’s fiscal 2020), the company’s sales have grown 8% after recovering from an 11% decline in the first year of the pandemic (Tesco’s fiscal 2021).

If we run our finger down the income statement and focus on operating income (EBIT), Tesco reported £3.1 billion in EBIT in the latest fiscal year (2025) with £2 billion in net income after interest and tax. This does reflect the highest earnings over the course of the current decade. But a glance at Tesco in the pre-scandal era of 2009 through 2012 (fiscal years) shows that this is by no means “record breaking profits”.

Tesco’s operating income and net income were higher than 2025 in 2009, 2010, 2011, and 2012, with the latter year representing the high-water mark that has remained unchallenged.

But here’s the catch. I tricked you (sorry). The numbers in the above table for fiscal year 2025 flatter Tesco, as they are adjusted to exclude certain non-recurring items such as restructuring, property write-downs, and expenses linked to the sale of Tesco Bank. The unadjusted numbers for the latest year are moderately worse. In the latest fiscal year, Tesco’s unadjusted EBIT was £2.7 billion with £1.6 billion in net income.

This puts to bed the first claim from Dave’s video. Tesco are not earning record breaking profits. But what about the second claim?

“Tesco could pay every one of their employees a £10,000 a year bonus. They would still make a profit”.

As per Tesco’s latest annual report, the company employed an average of 341,108 people in the fiscal year 2025. If Tesco paid 341,108 employees a bonus of £10,000, their balance sheet would be £3.4 billion lighter. In the real world, this payment would be an operating cost. Tesco’s £2.7 billion in operating income would not cover the cost, so the company would swing to an operating loss of £700 million before considering interest and tax.

Now they could use some of the £2.3 billion in cash they have sitting on the balance sheet, or the additional £2.2 billion in short-term liquid investments, but we’ll get into why that argument can be poo-poo’d shortly.

This firmly puts to bed the second claim from Dave’s video.

Reality called, it asked why you’ve not been around lately

There are certainly industries that are guilty of giving the consumer an unfair ride. My two cents are that the beauty of capitalism is that you don’t have to consume. If enough consumers vote this way with their wallets, or some new entrepreneur with a light bulb above their head decides to disrupt the market, the process of creative destruction should nudge the market’s invisible hand to do the bidding of the people. In hyper-regulated or statutory-monopoly industries, it’s not quite the same, but that’s not a facet of the supermarket industry.

We can delve into the semantics, examine industries that genuinely are malicious in their practices, but my point is this. Supermarkets are not the problem. They provide a vital service to the economy, utilising their economies of scale to offer produce and other inventory, sourced from across the world, at palatable prices. They employ hundreds of thousands of people in this country and others.

“But Waitrose and Marks & Spencer’s are so expensive”.

Don’t shop there then, go to Tesco. Go to Sainsbury’s, Asda, Lidl, Aldi, or one of the other great companies offering this service. Go to Amazon, shop online. I am not unsympathetic to the genuine struggle that inflation causes, but supermarkets, in particular, are as much a victim of inflation as the consumer. After expenses and taxes, a typical supermarket will earn ~5% operating margins. The net income margins will often be razor-thin, in the 1% to 3% range.

These margins continue to be low, despite passing on inflation to consumers during the post-pandemic inflation period. The practice of increasing prices to offset inflation has long been a common occurrence across most industries. It just happens to feel more painful when inflation is high.

Imagine for a moment that Tesco avoided increased prices to offset inflation since 2019. Their costs would still go up, as suppliers and other intermediaries passed their inflationary costs onto Tesco. The wage bill would continue to increase over time; avoiding doing so would have legal implications. Transportation, fuel, energy, packaging, all of these costs would creep higher still.

Tesco would eat the cost, and the net result would be operating losses. In plain English, Tesco would change from being a company that earns ~£0.05 for every £1 in sales, to one that loses money for every £1 in sales. That isn’t sustainable.

How does one plug the gap in the short term?

As we discussed earlier, when alluding to the imaginary £10k bonuses, Tesco could start to burn down some of the cash on their balance sheet and liquidate their short-term investments. This would naturally come at the expense of liquidity for other areas of their operations and stifle reinvestment into the business. Over time, Tesco would start to crumble as it struggles to exercise sufficient maintenance CapEx. In other words, it wouldn’t be able to afford to even ‘stand still’ as the rest of the market slowly moves forward.

What other options would they have?

The company could raise debt. Great, new cash flow. Now, how do they end up paying the interest and the principal on that debt if the company is deteriorating? Not a long-term solution. History is littered with examples of companies committing leverage-induced seppuku.

Okay Tesco. Think. What else?

They could take drastic action. Cut the dividend, shore up that cash outflow. Stop all reinvestment outflows. Start selling off assets, stores, and cutting the labour force. Conservation by consolidation. The irony of doing this, however, is that it erodes Tesco’s cost leadership advantage. As the company shrinks, the leverage they have over suppliers to source and purchase inventory at bulk discounts wanes. Their costs climb some more. Tesco ceases to be a big fish, and their ability to offer lower prices to consumers will all but vanish.

It’s a self-perpetuating doom cycle. Generally speaking, if a market/sector has high rates of competition, which I believe the UK supermarket does, this is good for consumers and tougher for businesses. If Tesco disappeared tomorrow, there would be considerably less competition in the supermarket industry. Fewer reasons to try to keep prices low to compete with Tesco.

Inflation is like a viscous web that seeps into every crevice and corner of the economy. Into our homes, our companies, our state of well-being. One can make the argument that the spotlight ought to be shone on the government, who decide the policies, and the central banks, which influence the cost of capital and the money supply. Of these three branches, government, private sector, and central banks, it would be fair and reasonable to say that all suffer because of inflation.

One could say the private sector inherits inflation, much like the consumer, not its architect. And yet, as ever, it’s the easy target.

Thanks for reading,

Conor

Note I emphasise the term ‘average’ person. The average person has never read a 10-Q in their life, doesn’t appreciate the nuance of a footnote, doesn’t know what a discount or risk-free rate is, and probably has a limited understanding of what it means to own shares in a company. So in this context, it’s a pretty short hurdle. As it relates to my knowledge relative to the average investor— I am not making any such claim.

You like stocks, what ones should I buy?

For anyone in a similar boat, and I am assuming this relates to most of my readership, you have likely experienced, perhaps on several occasions, a friend or family member asking for your opinion or advice on the broad umbrella of finance and/or investing.

To the average person, when you work in finance or are known to have an interest in the area of investing, it doesn’t matter whether you work as a bank teller, an economist, in a fund, as an analyst, or are simply an individual investor. To them, you work or are interested in “finance” so you must know about everything from the price of wheat to the geopolitical trade tensions of the times, to what stocks to buy.

The nature of the questions can vary, ranging from advice on saving and personal finance to asking whether the price of a publicly traded security is a “buy or sell” at a given time. Other times it may be open-ended— “What stocks should I buy right now?”. In some cases it may be an inquisition into your thoughts on a matter— “what is going on with the US tariff situation?”. It may be a request for an understanding of basic concepts like “How do I buy stocks?” or “What is an ETF?”.

Advising friends and family is a lose-lose scenario

As a general rule, I view all such questions as a loaded gun. On the one hand, you presumably love or have affection for these people. Being educated about finance and investing is a marvellous thing, and to help someone along that curve instinctively feels good.

On the other hand, it can commonly be a lose-lose situation. Here are a few thoughts on why:

1. You are not a financial advisor, and advising on matters in which you are not qualified can be problematic1.

2. You don’t, and will likely never, understand the full nuance of a friend or family member’s financial situation, their risk tolerance, their goals, and so forth. What is right for you, is unlikely to be right for them.

3. You don’t have the time to continually update them on the changing landscape.

4. You don’t have time to update them with your thoughts on individual stocks as they change.

5. The outcome of anything you advise them to do will be attributed to you.

6. You are encouraging a reliance on advice instead of encouraging them to pursue their own path of education. They should learn to make these decisions for themself, and be accountable to themself.

7. The average person will typically not pursue a path where they are dedicated to furthering their understanding of investing beyond a certain point. I will discuss this more shortly.

8. Investing in single securities is hard, and to be frank your advice might be lousy.

This list is non-exhaustive, to say the least. So what is the solution? Add a suffix at the end of every sentence “Oh and by this way, this is not financial advice”?

A few years ago I was having drinks at a bar with some colleagues I used to work with. They work in finance and are what I’d refer to as casual observers— more knowledgable than the average person, but not dedicated in the sense they read filings or follow individual companies closely. The topic of conversation often shifts to investing. One evening I briefly described a few companies I liked and the reasons why. While not a serious conversation, and one that was said in passing, I had focussed on why I like them as businesses. I had not commented at any time about whether or not they were attractive stocks— other than saying something to the effect of “at the right price…”.

Unbeknownst to me, the next time we met up, one of the individuals had bought a stock I mentioned and said it was down 30% or so and then sold it. Besides the fact I would not have purchased said stock at said valuation, I can stomach a 30% drawdown. I think most seasoned, long-term, investors can. The average person can not.

There is a side of me that believes your actions are your responsibility. If you follow advice— or in this case mere commentary— blindly and act upon it then on your head be it. However, if you have an audience or there is even the slightest perception you know what you are talking about on a given matter, you have a responsibility to be cautious about what you say.

An intelligent investor will acknowledge the opinion of others as that— an opinion and not fact. The average person is not an intelligent investor. This is why I am careful when discussing individual stocks in this newsletter, on Twitter, or in person. I make the point of avoiding directional language, providing forecasts, and suggesting action. You never know who is reading.

At the end of the day, I am aware enough to appreciate that I am a student, not an expert. Someone who cares about their friends and family— or audience— should make sure to preface any commentary with similar admissions.

How should you handle requests for advice?

This article is partly my intention to share my thoughts on the matters discussed, but equally, I want to hear from others about how they handle this situation. If you have some thoughts, I invite you to leave a comment or shoot me an email.

As a blanket rule, I think questions related to directional outcomes such as what stocks to buy or where the price of gold will be in 6 months, should be shut down with a simple “you have to buy what is best for your situation” or “I don’t know”.

The irony is that only novices will ask such questions. Everything is dependent on the context but most people will never seek to educate themselves past the first peak of the Dunning-Kruger curve and this is why recommendations can be so dangerous— which alludes to what I said in reason 7 for why advising friends and family is a lose-lose scenario.

The average person will typically not pursue a path where they are dedicated to furthering their understanding of investing beyond a certain point.

Those who want to learn more

When you intend to develop independent skills in investing, you will naturally surpass the initial peak of ignorance and tumble into the valley of culture. Cultured in the sense that this is the point when you realise investing is not easy. At this point, you likely appreciate the frivolity of relying on the advice of others when it comes to selecting investments— so you won’t find these people asking you questions.

Those who don’t

For the rest, they will be quite happy learning a few terms and basics, and thereafter relying on the advice of others. This is a precarious relationship to have.

What is permissible?

There are times when friends and family ask questions that are relatively safe to respond to. These questions have less potential for harm. A personal example I can relate to is that of a family member, with children, who asked me some questions on the basics of investing and what vehicles were available in the UK to invest in, both for themself and their child.

Questions such as:

• What is a stock?

• What is an ETF and how is it different?

• Can you explain the costs related to investing?

• How do you buy these instruments?

• What vehicles are available to mitigate tax?

• Etc

Particularly in the UK, I feel more obliged and enthused to help, because the education and general awareness or enthusiasm for investing is so low. My approach here was to answer any question they had related to the basics of investing with thoughtful detail— what stocks are, what ETFs are, and how to identify the inherent costs of transactions. To provide an overview of what vehicles are available and how they differ (ISAs, SIPPs, General Accounts) on tax implications— but not to explicitly recommend any course of action. Candidly, I did steer them towards low-cost ETFs— warning that picking individual stocks is not something to be taken lightly when starting out.

All of this was said with the understanding that you can’t load years of nuance into someone’s head who is not going to undertake the same dedication as you— reading transcripts, filings, etc. With most fields, you have to learn the rules first before you can appreciate and understand the nuances and exceptions— or the ‘buts’. I wrote about this in 2022 in an article called ‘Investment Maxims Are Not One-Size-Fits-All’. I’ll share a quote from that to give you an idea of what I mean.

“Investment maxims possess a beautiful irony; a dichotomy between simplicity and complexity. Simplicity requires an incredible amount of hard work to accomplish and the knowledge to appreciate it. Because investment maxims are simple, the nuance is often overlooked. Not only are they misunderstood but they are also mistaken to be a one-size-fits-all solution to the stock market. What might be perfectly good advice to one, is not applicable to another.

The notion that “diversification is ignorance” could be a destructive piece of advice for a beginner. Failing to grasp the true meaning, they could assume this means simply owning fewer stocks. They may then construct a small basket of concentrated positions, all within the same factor, on the back of that newfound knowledge. Put differently, maxims like this require the knowledge to appreciate it. Have you ever been asked a question by someone less experienced than yourself to which you respond with a watered-down version of the answer? At the conclusion of that response, there is often a desire to add “buts” and “well in most cases”, and “well sometimes…”. There is a tail of caveats that can be overwhelming for someone who doesn’t yet have the base knowledge to fully absorb and/or understand them yet”.

So in this case, I followed up by recommending a series of books that would help form that prerequisite foundation of knowledge— covering topics like passive vs. active investing, shorter books that cover particular themes from the ‘Little Book Of’ series, and some rudimentary books that answer the basic questions that most new investors have like “what is a stock and why do they go up and down”.

In conclusion, I believe that providing specific advice to friends and family is a lose-lose scenario and one that ought to be avoided. For queries that are more general, I think it’s fine to cautiously inform friends and family of the basics by answering their questions and recommending ways they can educate themselves— while avoiding directional or transactional advice.

But these are just my thoughts on the matter. I am curious, how have you handled this situation in your life?

Thanks for reading,

Conor

“Return, specifically the surplus generated relative to a chosen benchmark, is the ONLY barometer of success for an investor”.

Concentration Pays

That’s a polarising statement, isn’t it?

A few weeks ago, I stumbled upon a tweet from Mr Arny Trezzi, which has garnered 250,000 impressions (and counting). He pointed to his 403% return compared to the S&P 500’s 29% with an undercurrent of irony towards the fact he was unable to get a job at a hedge fund— it’s likely this performance decemates most hedge funds over this period. Naturally, I dove into the comments. To my delight, the comments were overwhelmingly positive (I was expecting a few “aCktUaLlLyY” reply-guys).

This tweet intrigued me, but I think some context is important to lay the groundwork for what I want to discuss. Paraphrasing Arny for a moment, this return was generated:

• From a start date of August 2023.

• Without leverage or options.

• By carefully picking individual stocks.

• Via considerable concentration (having been 100% long Palantir (PLTR) several times and for most of the period.

• Without the intention of selling courses or advice.

• Without regard for ‘traditional’ measures like Sharpe ratios, et al.

• With the acknowledgment that money managers can’t invest in this fashion.

For a longer breakdown, I implore you to read it straight from the horse’s mouth— here

I’ve spoken to Arny a couple of times over the years and am genuinely thrilled to see the success of his input. My perception of him is that he is bright, works incredibly hard, and doesn’t take himself too seriously. I think it’s evident that while he may appear to be exclusively focussed on a very limited number of stocks (one or two most of the time), he is a workhorse and loves what he does. Ultimately, an investor’s lessons are theirs to learn. One shouldn’t find oneself becoming too invested in the triumphs and failures of others. As Ralph Waldo Emerson once wrote, "Envy is the tax which all distinction must pay”.

I say this to preface that I am going to discuss other perspectives, and these perspectives are not necessarily my own, nor are they exclusively aimed at Arny’s situation. Rather, a broader discussion on returns, how someone might generate those returns, and our tendency to engage in comparison.

The cat who touched the stove

A perfectly natural exhibition of cynicism (or ‘realism’, depending on the stroke of your brush) would be to state, “Cool, try do that again”. The performance period spans less than two years, after all.

For every individual who made a killing shoving the stack into a stock at the right time, there are 99 who went all-in with the losing hand. Arny’s style is high-risk, high-reward, and it doesn’t require much imagination to conjure up arguments against his philosophy. By all means, single stock portfolios are less an impressive display of skill and more so an exhibition of courage, cojones and fortunate timing.

There is a parable about a cat that sat on a stove top. It goes something like this.

“A cat that sits on a hot stove will never sit on a hot stove again... but it will also never sit on a cold one”.

By my math, Arny’s CAGR at the time of the tweet was ~165%. Suppose he sold everything, allocated 100% to cash, and did nothing for a decade1. The CAGR would be 17% (before inflation)— a 700 bps surplus to the lifetime CAGR (10%) of the SPDR S&P 500 ETF, SPY.

But the cat that never sat on a hot stove before will continue sitting on the stove, assuming it will be cold, until the day it is not.

Not all trends are built the same

In the analysis of trends, I distinguish between fads (a moment), trends (a movement), and sustainable trends (trends with a second act). Concerning performance, you can think about it this way. A great short-term performance (say 0-2 years) is a fad— likely the result of luck or dominant market narratives or themes. You own a lot of energy stocks, which are in favour, and your portfolio does well.

A solid medium to longer-term performance (say 3-10 years) is a trend. Within this period, there is likely to be one or two cycles that have passed— with various factors and themes having their moment in the sun. Luck is less of an influence. If you come out the other side with a solid performance, then it’s more likely you have not simply got lucky playing the same hand repeatedly. There is an element of skill that has resulted in this return— whether that be in allocation, rebalancing, patience, opportunistic transactions, etc.

A strong long-term performance (10+ years) is a sustainable trend— although I dislike calling anything about investing sustainable because a lapse in judgement can come at any time. The idea here is that most investors with an aptitude can ride a bull market for a decade— a tide that lifts all boats. But it takes serious metal to endure several cycles, multiple bear-bull rotations, recessions, etc. The ‘second-act’ here refers to genuine skill and ability to generate excess returns during alternate regimes.

Compounded annual growth rates (CAGRs) are an incredibly effective way to measure and compare growth rates, but their utility is weak in the short term. Consider a start-up that generates $500,000 in sales in January. Someone then annualizes it to suggest they make $6 million this year. But if January was plumped-up by a one-time contract, the projection is misleading. Now, consider the S&P 500 did 10% in returns by January. Annualized, that’s well over 110%!

News flash: the index has never surpassed a 50% return in a calendar year. In stand-alone calendar years, it can be dangerous to place too heavy an importance on the S&P’s return. At the time of writing, the S&P 500 has returned 5.2% in the last year. Over the past 2 years, that’s 15.7%— 7.6% in 3 years, 8.4% in 4 years, 15.6% in 5 years, and so on. As the period observed gets longer, it gravitates towards the long-term average (10.04% over the lifetime of the SPY ETF).

An investor who earns a 15% return in a calendar year is not impressive. Nor is, in my opinion, an investor who earns a 150% return in a calendar year. A chimpanzee could do the same. Nonetheless, I bet it feels incredible (I wouldn’t know).

In 2024, in a piece called ‘Fads and Second Acts, ’ I wrote about the difference between short-term fads, longer-term trends, and sustainable trends. I’ll save you the reading and just share the conclusion.

“It’s important not to dismiss every trend as a fad. It’s equally important not to confuse every fad as a sustainable trend through extrapolation. It’s considerably more important to — take the time to ponder the difference between the two; identifying to the best of your ability which you may have stumbled across”.

This is all to say that we shouldn’t judge investors too harshly or praise them too heavily over short-term periods. That goes for shaunfreunde (revelling in the misery of others) and hubris (exaggerated pride or self-confidence in one’s abilities), too.

Hedge funds don’t work that way!

One commenter on Arny’s thread said the following:

“Hedge funds are about managing risk hence why it’s called hedge fund. What’s your sharpe and sortino ratios? What’s your max drawdown? What’s your factor risk exposure? What’s your idiosyncratic portfolio alpha vs. Systematic return?”.

Where to start….

I have a sense of appreciation for the response in some ways. It’s a common trope to question why money managers and/or financial advisors exist when “you can just buy the S&P 500 and pay no fees”. This sentiment misses the point entirely.

I think it’s a blessing to have such an interest in finance, money, and markets that you are willing to put your capital behind your ideas— to read the filings, read the transcripts, follow the footnotes, and what have you.

In reality, there is a tiny pool of people with a personality suited to this type of dedication. For many, whether it be a lack of time, interest, risk appetite, or education, offloading that burden to someone else— to use an advisor as an example— is a godsend. Advisors are not stock pickers by trade, but they help bring balance and structure to your finances through allocating funds, understanding your goals, tax planning, retirement planning, budgeting, cash flow planning, rebalancing, insurance, and a host of other services.

In short, an advisor’s fee is not a derivative of their ability to outperform the market. Nor is a hedge fund’s sole purpose to have the best performance known to man. They are certainly more geared towards outperformance than an advisor, and they are not merely tracking a benchmark like a mutual fund or an index fund, but they can provide access to more exotic instruments and generally have greater flexibility concerning how they invest.

What’s your sharpe and sortino ratios? What’s your max drawdown? What’s your factor risk exposure? What’s your idiosyncratic portfolio alpha vs. Systematic return?”.

To repeat the above comment once more highlights the bliss of being an individual. None of that shit really matters to an individual. Individuals cannot be compared to institutions.

Is Return the ONLY Measure of Success?

Circling back to the question that was provoked by Arny’s tweet. Is return the only measure of success?

It depends on who’s asking.

If you ask the populants of the world today “is the world getting better or worse?”, an incredible number of people will tell you the world is a worse place today than it was 30 years ago. In my opinion, these people are either morons or suffering from a tragic level of ignorance. As much as the media tries to persuade us otherwise, there has never been a greater time to be alive than today— this is factually correct when assessing the conclusion across most variables.

• The percentage of the global population living in extreme poverty today is 8.5% compared to 29% in 19952.

• The global female literacy rate has increased from 70% in 1995 to 84.1% in 2023.

• The global infant mortality rate has declined from 59.4 deaths per 1,000 children (5.94%) to 27.3 (2.73%) since 19953.

• The global life expectancy is now 73 years, up from 64 years in 1990.

• In 1995, just 1% of the population had internet access; today, it’s closer to 70%.

Global hunger rates, access to electricity and safe drinking water, aviation fatalities, child vaccinations, child labour… the list goes on. There are so many signs the world is a better place today.

Yet, with all that said, I can still understand why some people feel the world is not a better place. Most often, they base their assessment on some niche perspective that, within the context, justifies the answer of “no” to the question I proposed. The laws of mimesis show that humans tend to compare themselves to those closest to us. It’s why notions such as “relative poverty” exist and are legitimate.

In a similar vein, if you ask investors, “Is return the only measure of success?” there is an accurate and holistic answer. I believe that for the most part, the most accurate and convincing answer is “yes” if we change the word ‘only’ with the term ‘most important’— “Is return the most important measure of success?”.

Ultimately, investing is about taking your idle dollars and putting them to work in the hopes that they deliver returns. But returns relative to what? The question is open-ended. This is where the answer is not so straightforward.

• In excess of inflation: Every year, idle cash loses value thanks to inflation and currency devaluation. In other words, $100 today will purchase considerably less than $100 in 20 years.

• In excess of the ‘Market’: The ‘market’ is different things to different people. To some, it’s the MSCI World. To others, it’s the S&P 500. Whatever the case, if you could have earned more money, doing effectively nothing more than buying a passive ETF that tracks ‘the market’ then some will say your time has been wasted.

• In excess of the ‘Benchmark’: Some of you might say, “What is the difference between a benchmark and the market?”. We could argue semantics, but everyone’s version of ‘the market’ is a benchmark, but not every benchmark is someone’s version of ‘the market’.

• In excess of Everyone Else: To be ‘the best’ investor there ever was. A fine goal, as unrealistic as it may be.

Everyone has their version of what their returns are measured against. Whatever that is, the relative returns should be the most important measurement of success. If you are dedicating precious time towards this pursuit, then you should be validating whether that time was well spent. I think I have written about this extensively in the past, so I will spare the detour.

However, I think there is huge success in simply having the awareness to appreciate the potential life-enhancing force that investing can be, while at the same time demonstrating the respect and understanding that it’s not ‘free money’.

In a similar way that the Western world seldom appreciates the fact they have an abundance of clean drinking water, a ‘sophisticaed’ investor infrequently appreciates the fact they are already ahead of most of the population by having the wherewithal to prioritise their financial health.

From the perspective of a UK resident, the level of education and enthusiasm surrounding public markets are abysmal. The Office for National Statistics (ONS) reports that in the 2022/23 tax year, there were 12.4 million ISA accounts subscribed to in a country of ~45 million adults. An Individual Savings Account (ISA) is a tax-shielded investment wrapper that allows UK residents to invest up to £20,000 (~$26,000) per tax year, with all resulting capital gains and dividends exempt from tax, forever.

Of the 12.4 million accounts, 64% (7.9 million) were cash ISAs— an account that simply lets an individual earn tax-free interest on cash. Considering the UK has averaged 1.96% interest rates over the past 20 years, these individuals would have likely failed to circumvent inflation. Just 31% (3.8 million) of accounts were Stocks & Shares ISAs— an account that facilitates the purchasing of equities, ETFs, and funds protected from tax. In theory, a UK resident could max their stocks ISA each year and become a millionaire within 25 years, assuming a 7% annual return, and pay zero tax on that portfolio.

I’ll hazard a guess that 90% of my readers view the decision between utilizing the £20,000 annual allowance towards a stocks ISA and a cash ISA as a no-brainer. Yet, for most Britons, this isn’t the case.

It’s widely reported that more than 50% of American households own stocks directly. While harder to find a perfect comparative data set for the UK, the best estimate is between 20% to 25% for UK households. I therefore think it’s an incredible success for someone in the UK to get over their cultural risk adversity and real-estate-fetish and allocate money towards a stocks and shares ISA product.

As you become more competent in investing, naturally, you delve into alternate universes of comparison. We tend not to compare ourselves to people we consider ‘below’ us. Rather, those who are on roughly the same ‘level’ or slightly above us. When comparing your salary, you often look at people in similar job functions, of a similar age, and in the same country to gauge how fairly you are compensated.

Most new investors are not fixated on beating the S&P 500— they are more content with tracking the percentage of income they invest and learning how to invest. As time progresses, your base for comparison shifts. You beat the index— great. But you still didn’t beat Tom, Dick, and Harry who have outperformed you for years? Where does that pursuit end?

Ultimately, it’s the investor’s choice. There will be some who deny the idea that returns trump all. Picking stocks has so many other worldly benefits, such as education, community, and knowledge of the world. Then there are the more pragmatic of us who say no, a big brain doesn’t feed your family or lifestyle, being right does.

Success looks different depending on where you are in the journey and what your goals are. There is no right answer. There is an abundance of non-performance-related benefits that come from taking an interest in public markets, but at the end of the day, you have to have something to show for your efforts other than a bigger bookshelf and more interesting dinner conversation. There’s no shame in not beating the market. But there’s also no excuse for not trying4— at least, once you know what’s possible.

Thanks for reading,

Conor

My experience in the professional world is short. So too is my experience with life generally. As I approach thirty, I am grateful for the experiences I have been afforded and for the mentors I have had the benefit of learning from. Sometimes lessons come the old-fashioned way too, from books.

I have curated a few things I have been thinking about this year— some of which are broadly applicable and others specific to a product role that may not interest you. This isn’t career advice, nor will it apply to everyone. The common cliché of this type of material is that you write to your ‘younger’ self. In contrast, I view this as writing to my ‘older’ self. With any luck, I can look back on what I write today and cringe at how naive it was.

1. Mentorship

When I was younger, I often read that it was important to find a mentor—someone who could guide and advise you in all matters related to life and career. “Find a mentor”, people would say. “I am meeting with my mentor”, declared others. Due to my inexperience and the fact this concept was foreign to me at the time, I had preconceived notions of what this relationship should entail.

I imagined some kind of ‘search’ would take place— where you actively seek out your mentor and shape a formal relationship.

“Hello sir would you like to be my mentor?”.

“Of course, let me now mentor you, mentee”.

“Excellent”.

In retrospect, my view of mentorship was almost ceremonial— an affinity with a more experienced person that came with labels, scheduled meetings, and in a way a somewhat one-sided and transactional relationship. As I eventually encountered mentors, I discovered that none of this has to be true (at least, in my experience).

In reality, mentorship transpires organically and the symbiotic relationship between mentor and mentee often exists without vocal acknowledgement. Sometimes, you will stumble into mentorship as a result of proximity. Other times, you are a mentee from afar, learning from someone you admire without direct interaction— whether through their writing, talks or watching how they handle challenges, you can learn by observing and applying the lessons to your situation. If you are willing and eager to learn, a mentor will find you.

I once thought that a mentor was simply someone who demonstrated how to do things, gave you advice, and showed you ‘the ropes’— shaping you in their vision. What I found is a mentor is someone who identifies talents and capabilities within you that you may not have realised— giving you the freedom and trust to develop those abilities. Someone who identifies your potential and nurtures it.

I no longer believe the relationship to be one-sided. Benefits to the mentee centre around personal growth and skill development. Depending on the context, mentors can benefit by improving their leadership skills and improving the aptitudes of their employees. There is an element of reciprocal learning that occurs too— engaging with a mentee can fructify fresh thinking, novel ideas, and new perspectives.

As I progress in my career I consider myself fortunate to have had a couple of great mentors, both of whom took a chance on me and offered me opportunities to develop my skills in ways that would have been difficult in a more traditional career path. Mentors are all around us. You can learn from anyone, in any discipline.

2. The Single-Thread Leader

The single-thread leader is an organisation-design concept popularized by Amazon. While commonly applied to teams and groups, it’s a useful tool for the individual. This concept was taught to me in a previous role by a Product Manager I worked under. At the time, some responsibilities that had previously been handled by two people were being consolidated into a single owner— me. I was educated on the concept of single-thread leadership— used as a rationale for why this decision would result in higher agency and greater quality output.

There are many definitions, but I like this one1 from Pedro Del Gallego:

“A single-threaded leader is an individual wholly dedicated to solving one business problem, someone who wakes up in the morning and worries just about that one thing, ensuring the initiative’s vision and goals are always at the forefront and is ready to escalate risks early. Single-threaded leaders may be individual contributors, manage a single-threaded team, or a large organization whose attention is similarly focused on that one initiative. The defining characteristic is not the scope of the initiative but the single-threaded nature of the work”.

- Pedro Del Gallego

When a single person is fully accountable for an initiative or project, they have a stronger sense of ownership. They become more invested, make decisions that are more closely aligned with the success of the initiative and tend to drive more potent output because they are personally responsible for its success or failure. Accountability results in stronger engagement, higher quality work, and faster execution. The key point here is not that single-threaded leadership is about delegation— rather, it’s about licensing someone with responsibility, ownership mentality, and autonomy. When people feel a sense of ownership or responsibility, they care more.

“The best way to fail at inventing something is by making it somebody’s part-time job”.

- David Limp, Former SVP of Devices and Service at Amazon

I am sure many reading this can relate. We have all likely experienced a job where we feel like a replaceable cog in a giant machine. If one cog stops working (that’s you), another one can be put in its place at relatively short notice. Instilling a sense of autonomy into an employee is a smart decision for many reasons, especially because it makes them feel like an engine instead of a cog.

Cogs are replaceable, but engines propel the system. Cogs are mobilized from up above, engines mobilize the cogs. While this may not strictly be true in reality (even senior executives or CEOs are replaceable) it’s about how these individuals feel and engage with their responsibilities. It’s less fun to be told exactly what to do— it’s more fun to be told to go make something happen.

This concept relates to the next point— making yourself indispensable.

3. Make Yourself Indispensable

At face value, the term “make yourself indispensable” can conjure up a lot of different meanings. A simple way of putting it is that your absence will be felt if you suddenly disappear. This doesn’t have to mean becoming the master of the mundane. If a member of a packing facility steps off the line and goes home for the day, their absence will be felt— but the line member can be easily replaced.

So making yourself indispensable must be about making yourself irreplaceable? This is not necessarily true either— within reason almost anyone is replaceable given enough time. Becoming indispensable moreso aligns with the following non-exhaustive list;

• Developing a skill that few others in the organisation have

• Owning a function that nobody else does

• Being reliable and consistently delivering high-quality

• Taking the initiative to solve problems proactively

• Being responsive to solve retroactive problems

• Being a strong communicator

• The ability to learn and adapt quickly

• Willingness to take on more responsibility and ownership

Sometimes this means doing things you don’t necessarily want to, or that others don’t want to— or both (more on that later). The point is not to be thought of as irreplaceable (although, that is nice), but rather to create the impression that it would be a challenge to find someone to replace you— with the caveat that simultaneously nobody wants to replace you.

Ami Vora2 wrote a concise article about what makes an indispensable employee— one worthy of promotion. Get better at complexity, autonomy, and throughput:

Complexity: How difficult a problem can you solve? Sometimes this masquerades as “scope” or “breadth” or “depth” — all different ways to describe why a problem is hard.

Autonomy: Can you handle the problem with minimal guidance? This doesn’t mean “solve it yourself at all costs” — but instead, can you take the lead and pull in your manager and others appropriately to keep them informed or get their support when needed?

Throughput: How many hard problems can you solve at the same time?

- Ami Vora

4. Be Open to Doing Everything

Maybe this is a trope of being earlier in my career that I will someday realise outlives its usefulness, but I have always tried to be open to doing everything. Naturally, there are times when you should learn to say “No” or avoid doing work that is not an efficient use of your capacity— I imagine this is a more important consideration as seniority grows. But at my level, curiosity has allowed me to experience customer support, partnerships, social media work, and product-led work in addition to gaining insight into functions I don’t actively contribute to but that impact my role and organisation such as sales, engineering, marketing, and hiring.

There is an expression that the ‘jack of all trades is the master of none’ but I believe that understanding the various factions within an organisation will help in a stronger holistic sense of the organisation as a whole. This also feeds into the topic of perception vs. perspective, which I cover next. If you can’t “do” a function, take time to understand the position and what it entails from others in that role.

The concept of “trying everything” vs. “being a single thread leader” naturally collide. The conclusion is that “it depends”. Framed around context, career stage, and impact, each will be useful to an individual at varying moments in their life. Earlier stages in one’s career or tenure at a company are a good time to explore everything— later stages are conducive to specialization or deeper ownership. There are times when you must be a generalist and times when you should focus deeply on a limited number of objectives. The key is understanding when to say yes to learning vs. saying no to distractions.

5. Perception vs. Perspective

I have found the distinction between perception and perspective useful across a variety of workflows— whether in investment analysis, product-led work, or general communication.

Perception is the way that we each observe the world— “If there are 7 billion inhabitants of the earth, then there are 7 billion pairs of spectacles through which the world is viewed”3. Perspective is understanding how other people are observing the world.

In conversation, it’s often a battle of perception vs. perception. The sharing of perception unlocks perspective but this is seldom acted upon by those privy to the conversation. Perception tends to trap its owner in a narrow-minded frame of thought. The subtle shift in focus from perception to perspective when engaging in discussions can be powerful and arm you with an informational advantage.

In communication, it can lead to stronger arguments and persuasion if you understand what will resonate most. In decision-making and planning, it can help you pre-empt the pushback you may receive on a proposal and proactively augment the pitch or come up with rebuttals.

This is particularly true if your work involves communicating with technical members of a company— a point I address later. As a Product Manager, I don’t write code, I don’t know the language, and I don’t think I ever will. Yet, through conversing so often with engineers, who help me understand (amongst many things) our system infrastructure, I now often have a better sense of what the pushback or technical limitations of a proposed product requirement will be. This helps narrow the focus on the things we can deliver and avoids squandering precious product and design resources on functionality that extends beyond the realistic scope of the project.

In short, if you are a Product Manager, you shouldn’t always be thinking like a Product Manager. You should be viewing the situation from the perspective of the user, design, engineering, and various other stakeholders. The same idea can be applied to all disciplines. If, for example, you are a defence attorney, it helps to understand the perception of the prosecution.

6. Understand Your Influence Can Change

I’ve worked at companies with employee counts ranging from 30 to 2,000, to 100,000 with varying levels of influence. I discovered the potential and velocity to learn, gain responsibility, and evolve is levels of magnitude greater in a smaller company. I will add the caveat here that this is personal to my journey and the stage of my career. There are opportunities to excel at companies large and small.

In smaller companies, I have been fortunate to have some great mentors who supported my growth and for the first time gave me a sense of influence— responsibility to make decisions that affect the organisation. I will admit that I still find it somewhat weird when someone comes to me for a decision. I will add another caveat here that I am not overestimating the influence, as these decisions are largely product-related which, while important, can be rectified or changed.

To remain grounded, I remind myself that influence is subject to change. In Elad Gil’s book, the High Growth Handbook, he makes several great points about employees who scale and those who don’t. When a company grows from 100 to 1,000 employees the culture changes, and the CEO/founder should be the one communicating that culture transformation is okay and expected. What often happens is resistance to change.

I recall my first ‘real’ job out of university, working as a data jockey for an investment accounting software provider. The company at the time had ~1,500 employees and was a couple of years away from an IPO. Although I didn’t quite connect the dots as much as I can today, I recall there being a visceral divide between the ‘original’ employees and the swaths of new young graduates that flowed in as the company entered its scaling stage. The former clung to the culture that existed when the firm was considerably smaller. The latter embraced the new corporate identity of a company that was no longer founder-led.

Gil calls this the ‘Old-Timer’ syndrome of early employees4. The early employees who fail to understand that their influence will diminish as the company grows can become resentful, resistant to change, and will be outgrown by the company— constantly longing for the old days.

“Some of the most valuable long-term employees of a high-growth company join early on. These employees often have earned the trust and admiration of the founders and CEO, and they have the cultural context and long-term mission of the company in mind, which enables them to achieve outsized things in a high-growth startup.

Their "old timer" status allows them to challenge convention (or provide context on it) in ways that enable them to reshape or remove rules or old processes”.

- Elad Gil, High Growth Handbook

The employees that will thrive are those who accept their influence will diminish over the short to medium term.

“Early employees who are humble enough to realize they can learn from fresh blood can grow with the company and use it as a personal platform for their own learning and impact. Some early employees will stick with a breakout company for decades and their personal story arc mirrors that of the company. These employees tend to be hungry to learn from others, understand that the company, their role, and its culture will inevitably evolve, and are open to change.

A common sign that an old-timer will work out is their eventual acceptance that their role and influence at the company will shrink in the short- to medium-term as the team scales, but that it will expand with time as they continue to learn and the company continues to scale”.

- Elad Gil, High Growth Handbook

This is a facet I have not learned through experience yet, but one I am cognizant of so I can avoid slipping into the old-timer syndrome if the opportunity presents itself (see footnotes for warning signs).

7. Let Go of Things You Love Doing to Grow

Like the last point, this is another one I am expecting to learn through experience and am preparing for when the time comes. The idea of ‘Giving Away Your Legos’ was coined by Molly Graham5 in an article that shares the same name.

Graham witnessed the growth at Meta as it expanded from 500 to 5,500 employees in the early days. She describes the concept as follows:

“The best metaphor I have for scaling is building one of those huge, complex towers out of Legos. At first, everyone’s excited. Scaling a team is a privilege. Being inside a company that’s a rocket ship is really cool. There are so many Legos! You could build anything. At the beginning, as you start to scale, everyone has so many Legos to choose from — they’re doing 10 jobs — and they’re all part of building something important.

You have so many choices and things to build during this early phase that it’s easy to get overwhelmed. There’s too much work — too many Legos. You’re not sure you can do it all yourself. Soon, you decide you need help. So you start to add people. That’s when something funny happens on a personal level and to teams: People get nervous.

As you add people, you go through this roller coaster of, ‘Wait, is that new person taking my job? What if they don’t do it the right way? What if they’re better than me at it? What do I do now? These are some strong emotions, and even if they're predictable, they can be unnerving. In order to get to a really high-functioning, larger team, you have to help everyone get through this roller coaster. If you don’t, you can end up with a real mess”.

- Molly Graham, Give Away Your Legos

Until now, i’ve been focused on acquiring new skills and taking ownership of new responsibilities. I juggle several different functions, most of which I love, and I hope that someday I am forced to give away some of these functions— implying that the company and I are growing. There is a natural desire to want to cradle functions which were once your “baby” or to remain “in the details” as Airbnb’s Brian Chesky would say. But as Graham remarks, “Almost everything about scaling is counterintuitive”.

“One of the foremost examples is that reacting to the emotions you’re having as your team adds more people is usually a bad idea. Everyone’s first instinct is to grab back the Legos that the new kid took — to fight them for that part of the tower or to micromanage the way they’re building the tower. But the best way to manage scaling (and one of the secrets to succeeding in a rapidly growing company) is to ignore those instincts, and go find a bigger and better Lego tower to build. Chances are if you pick your head up and look around, there’s a brand new exciting pile of Legos sitting right next to you.”

- Molly Graham, Give Away Your Legos

8. Speak to Technical People

If you are not a technical person and you work with a technical product, speak to technical people. This is a mutually beneficial relationship. Engineers are the architects of your product but are not usually the target users. Conversely, a product person is closer to the target user and (should) have a desire to understand the infrastructure of the product they help cultivate.

Product people want big and powerful features. Design wants intuitive flows, continuity, visual feedback, and signifiers that make sense to the user. Engineering wants to maintain a strong cadence of delivering new features and improvements to production, efficiency, an absence of bugs, and happy users.

Earlier in my career I asked why don’t companies just hire product people who can code, or engineers who are gifted with great product sense? In reality, while it’s certainly possible to find some instances of this, it’s not the norm. They are different mental mappings. As a product person, communicate with engineers as much as possible. Don’t accept an explanation, seek to understand it.

This takes time, numerous conversations, and repeated exposure, but if you absorb as much as you can, you will further your understanding of how the product works and might develop a sense of foresight when it comes to pre-empting constraints or issues that may be raised when handing over a project to engineering.

9. Speak to Users

The saying goes that if Henry Ford had asked consumers what they wanted Ford to build, they would have said “Faster Horses”. There are varying viewpoints on when and when not to listen to consumers. The ‘True’ luxury companies, for example, are thought to be the arbiters of taste. They don’t create for the consumer, they simply create— and the consumer follows. Brands in the ‘Premium’ category are the ones who create for the consumer. Unlike luxury products, which are non-comparables, premium products are often compared against peers along the value-to-utility scale— “Am I getting my money’s worth?”.

I don’t have experience with the luxury space personally, but if your product is being built for a consumer (whether B2C or B2B) it’s useful to keep a finger on the pulse of what your users want— whether that’s functionality you are missing or pain points with existing features. Engage with their online communities, set up calls, and create networks of highly engaged users to tap for feedback.

If you are involved with a product, you must speak with users.

It’s not always the case that product teams have the most direct contact with users. In some cases, the sales team have the closest proximity to enterprise customers. Something I have found to be invaluable is an open communication line with sales. The customers they communicate with frequently share valuable feedback on features that will get them over the line for signing a deal. If this information is lost in the siloed environment of the sales team, there will be no sense of urgency or understanding from a product perspective. The feedback should find its way back to the product teams.

Thanks for reading,

Conor

4

A list of bad behaviours that may be signs of old-timer syndrome, from Elad Gil’s High Growth Handbook.

“There is virtue in work and there is virtue in rest. Use both and overlook neither”.

- Alan Cohen

Most investors rely on the stock market to guide their decision-making

The investment industry is structured for activity— like a cacophony of overwhelming sensory cues streamed directly into your eyes, ears, and whatever orifice will accept them. The media encourages short-term thinking, reinforced by artificial constructs like calendar-year performance, quarterly earnings, and price targets. There is permanence in the questioning of why stocks move from day to day and ‘I don’t know’ is never a suitable answer— there always has to be a reason.

To feel comfortable doing nothing, when everyone else appears to be doing something, is to swim against the current. Doing less is a constant cognitive battle and most people fall victim to the market’s siren call at some point.

“Waiting helps you as an investor and a lot of people just can’t stand to wait. If you didn’t get the deferred gratification gene, you’ve got to work very hard to overcome that.” - Charlie Munger

Suppose we can glide between dimensions for a moment. Company A reports a mediocre earnings report— in line with expectations, nothing better, nothing worse. In the first dimension, the stock falls 15% the next day. In the second dimension, it finished the day up 5%. This experiment would not exist in a vacuum. Expectations - one of the myriad factors that can influence post-earnings reactions - will play a large part here. But on the whole, assuming all else equal, the investor is more likely to attribute a negative opinion of the report in dimension one (-15%) and a positive opinion of dimension two (+5%).

Why is this?

This thought experiment illustrates a fundamental truth— most investors use the stock market as a barometer to validate their opinions and decision-making.

A child sitting an exam may feel unconfident about their answer to question 17. Leaning over at their peer’s papers, they glimpse at what they wrote for question 17. Alas, it’s the same answer. Instantly they feel reassured and more confident— unbeknownst to the fact they both provided the wrong answer.

In the worst of outcomes, an investor will glimpse at a post-earnings price reaction before establishing their viewpoint— therefore tainting their perception and reinforcing a framing effect. That is to say, the report will now be consumed with an innate bias and the reader will subconsciously seek out confirmatory information.

In a marginally better outcome, an investor will glimpse at a post-earnings price reaction ex-post— seeking validation on how they perceived the report vs. how the market did— often affording the market’s reaction too great an importance.

There is merit to keeping a pulse on the market’s viewpoint, however. The impact of having a contrary opinion, and putting capital behind it, can be significant in the short to medium term. One need only look at the explosive turnarounds in previously beaten-down large caps like Netflix and Meta Platforms as corroborating evidence. It goes both ways too. Every bubble must come to an end and for a small number of investors who get the timing right, they capitalize on going against the crowd.

However, as the time horizon grows this can exhibit diminishing importance.

While timing is not everything, it still matters

In the summer of 2015, you could have looked at Greggs Plc— a company the market clearly favoured, having risen 290% (14.6% CAGR) over the prior decade. Since the summer of 2013, the stock had gone nowhere but up. Sure, it was a little expensive at the time, but it wouldn’t have been contrarian to own Greggs. If you’d bought at the peak in 2015, it would have taken two years to break even (evidence of being paid to have a contrary short-term outlook). If you’d held on, you would have enjoyed a 10.8% CAGR until the end of 2024.

That CAGR would be chopped down to 7.4% at today’s share price after some negative reactions to management’s commentary on the UK’s 2025 economic outlook at the beginning of the year.

Earlier I mentioned that “as the time horizon grows [timing becomes less important]”. I generally believe that to be true— with caveats. Being long consensus longs is fine, but it is the entry point that will have the most profound influence on long-term return. This is where having a shorter-term perspective can be critical. In the two years following Greggs’ 2015 peak, the forward earnings multiple tumbled from 25x to 15x. If you had waited until the market fell out of love with Greggs and still believed in the long-run opportunity, your return would be closer to a 13.4% CAGR today—or 17.7% by the end of 2024. This underscores that even if you are investing for the long term, the entry price matters. To increase the chance of a favourable entry price, you must engage in short to medium-term thinking. Buying at any price is generally a flawed philosophy— patience to wait for better entry points is typically awarded.

The point I am trying to make is that timing only becomes ‘less’ important, not unimportant.

There is a spectrum. At one extreme there is the ethos of ‘buy only when it trades like it’s going bankrupt’. At the other extreme ‘buy quality at any price’. I believe that the former is arguably more prudent, but requires an incredible amount of patience and likely results in a great deal of lost opportunities— great businesses seldom trade in such a way and it can be enough to acquire fantastic businesses at good or fair prices. The latter can work out but in my opinion, it’s a bolder testament to the fact you are complacent with playing the odds (that are seldom in your favour)— many people like to cite tremendous outliers, the one in 10,000 stocks, as evidence to the contrary but that mentality, for most unfortunate souls, is a recipe for disaster.

You can do very well existing somewhere in the middle of that spectrum— buying quality businesses at fair prices with a long-term horizon and a disciplined process. For the sake of longevity, this approach ought to be beneficial for the common investor. That said, there is no single way to invest, as evidence suggests people can make it work with whatever process is most compatible with their temperament.

I digress.

An investor looking at the market reaction to an earnings report commonly does this as a validation process— “I think X and the market thinks Y, so I am wrong”. While short-term price reactions are useful in some contexts, they are not indicative of truth. After all, it can be tremendously profitable to have a differing opinion from the market and have that opinion justified over the long term. But you have to be right. You can’t expect to be blessed through a strict adherence to patience alone.

This tendency to seek validation from market reactions reflects a deeper human inclination for fairness and reassurance. Whether we know it or not, we seek that reciprocal behaviour in the stock market. As Shakespeare once said, “The quality of mercy is not strained. Upon the place beneath. It is twice blest: It blesseth him that gives and him that takes”.

The pseudo-relationship between market and man is different. The stock market does not show mercy, nor does it benefit from showing it. Unlike in human interactions where mercy can be mutually beneficial, the market is void of compassion. It neither offers leniency nor rewards it.

Why are we bad at selling?

In 2024 I set myself a personal goal to be less active— further insulation from talking heads and to reduce transaction frequency. These two things can go hand-in-hand, as discussed in the introduction. Selling can be the result of pressure, but there are various reasons why we tend to be ‘bad’ at selling stocks.

An article1 from Frank Thormann at Schroders in 2022 was aptly titled ‘Why most investors are bad at selling and what they can do about it’. Referring to the underperformance of active managers, Thormann highlights the damning findings from a 2016 paper by professors Jin and Taffler:

“In a landmark paper, Professors Jin and Taffler (2016) looked at a large sample of over 3000 fund managers over the period spanning from 2003 to 2013. They found that on aggregate buying decisions added 1.4% of outperformance per year, while selling decisions detracted -1.8% annually in underperformance”.

The article describes a handful of biases that work against us humans in the pursuit of selling investments. Thormann surmises that because our brain processes fear and greed differently and the presence of behavioural biases, we are at odds with successful decision-making in this matter.

“Emotion of fear is processed very differently in the brain from the opposite feeling of exuberance because it is processed in a different location. As a result, humans think of (financial) losses very differently to how they think about gains, leading to suboptimal decision-making”.

This question of why we are bad at selling has been studied copiously, such as in Akepanidtaworn2 et al‘s 2018 paper, Selling Fast and Buying Slow, where they conclude that “while investors display skill in buying, their selling decisions underperform substantially—even relative to random-sell strategies”. Also observing institutional investors, this paper used a dataset of 783 portfolios, averaging $573 million in AUM, and covering 4.4 million trades from 2000 to 2016. Employing counterfactual portfolios that used a random selling strategy as a benchmark, they found that genuine selling decisions, made by managers, underperformed by 80 bps annually. Conversely, the genuine buying decisions outperformed the random counterfactual portfolios by 100bps annually.

Both the article and the paper conclude that selling is a neglected skill amongst institutional investors and point to various behavioural biases as a cause. Thormann, the author of the Schroders article, lists commonly understood biases— a summary of which is bulleted below.

1. Loss aversion: “The tendency to allow very recent performance history to shape one’s risk assessment of an investment”.

2. Availability bias: “In complex decision making we do not consider all alternatives equally but quickly jump to the ones which come to mind first”.

3. Confirmation bias: “We have a strong bias to interpret subsequent data points in a way to appear favourable to our original premise”.

The final point he makes is that we tend to spend more time on buying decisions than selling. Just think about it— how long do you spend researching a business before you end up deciding on whether or not you will buy it?

You examine the industry makeup, the market structure, and the business model. You scrutinise potential tailwinds & headwinds, cost structures, unit economics, and the consumer. You dissect the financials, the filings, and the management. You might reach out to peers to hear their take. You should explore confirmatory and contradictory evidence to challenge your base case. You go through numerous stages and burn a considerable amount of time.

Now, think about how long it takes you to decide to sell a stock. If we are being candid, for most it’s not weeks or months— it’s a matter of days. In some cases, hours. Again, there is a spectrum. Act too hastily and you might let an overreaction turn into a mistake. Conversely, sometimes fast reactions can help with calamity avoidance— it’s a good choice to jump out of a nosediving aeroplane while you have a parachute.

The same outcome can be framed in a different light. On the one hand, being methodical and taking time to process information can avoid making an irrational decision of selling pre-emptively. Yet, spend too long pontificating on the details and more damage may be incurred.

I’ve encountered this challenge many times— where the mistake wasn’t exclusively the sale, but the buying decision that preceded it— where the correct buying decision was not to buy and the correct selling decision was to sell 5 seconds after buying. Years ago, I bought into the premise of the PLBY Group squeezing value out of a brand that time had forgotten (Playboy). There was an opportunity for high-margin licensing and company-operated distribution of products and services. Eventually, the red flags compiled and I realized this thesis was not going to play out. I sold my relatively small, speculative, position for ~$6 per share with a 50% haircut. It was the right selling decision in the grand scheme, but it came far too late. The silver lining here was that I was not more hesitant. Within a year or two, the shares fell to $0.50 per share— I had avoided a 96% drawdown. These are relatively inexpensive lessons at my age, and I am grateful to have learned them early.

Investors are rewarded for both action and inaction

It’s natural to circle back to the buying decision when thinking about selling. You might think to yourself ‘If the buying process is perfect you can worry less about the selling’. The reality is that nobody has a 100% hit rate. Every investor will hold a future stinker at some point in their lives— the future is unknowable so what might seem like a strong bet today may require folding tomorrow. But suppose you have divine luck and throughout your life, you manage to exclusively acquire companies that will, at some point, proceed to 100-bag.

At some point, every 100-bagger has a chart that looks like the ones I have shared below (with legends and labels removed for dramatic effect). You are likely to suffer multiple significant drawdowns, years—even decades— of somewhat flat performance, and uncertainty as leaders, consumer tastes, regulation, and business models evolve. In short, regardless of your hit rate, you are going to be challenged with sell decisions. It’s guaranteed.

The market’s short-termism is dictated by sentiment and while timing is not everything, it still matters. I believe that selling is harder than buying, due to the increased influence and quantity of biases. While buying and selling share similar biases (such as FOMO), the introduction of live, unrealised profit and loss, creates a greater sense of urgency and desire to act.

My experience thus far has taught me that purposefully reducing potential triggers to the biases mentioned in this text can go a long way in removing emotion-driven sell decisions, but it won’t absolve them completely.

Errors at the input stage (buying decisions) are like ticking time bombs that, even absent of external stimuli, sit and wait for the self-awareness that you were wrong. The irony is that you can’t know if a buying decision will have a poor ten-year performance on day 1. This is only possible with time.

Investors are rewarded for both action and inaction. The challenge is knowing when to apply each. The desire to tune out of the market hubbub and transact less frequently is not an intent of disengagement— rather, a step towards better decision-making. It’s not about never acting. It’s about acting when it matters most.

Thanks for reading,

Conor

Ask most rational index investors what annualized return they would be content with over a multi-decade period and many will modestly claim that they’d be content with being on par with the index, so give or take around 8% to 12% (the current 30-year CAGR of the SPY is 11%).

Ask most rational stock-picking investors what annualized return they would be content with over a multi-decade period and most should claim that they’d be content with beating the index. I mean, that’s what all the hard work is for, right? This year it hasn’t been as easy as throwing a dart at the wall to beat the S&P 500, but currently, you’d have had a 39% chance2 of doing so with a single stock at the beginning of 2024.

One stock is fine, but create a basket of, say, ten or twenty stocks and that probability declines dramatically. In years when the indices are performing so well, or particular sectors or industries, it can be tempting to look around you and be envious. Other investors will share triple-digit YTD returns and make you feel that your returns, which in any other circumstance may be considered great for a calendar year, feel paltry. I’d bet this comes with no thought to the differing style, concentration, risk appetite, and so on.

An 8% annual return is nothing to be scoffed at. Do this over 30 years and your initial investment will have grown by a multiple of 10 times. Forget the market and what others are doing for a moment. The fact is that the average human being is not earning anywhere close to an 8% return on their savings over such a long period. The average human doesn’t invest, doesn’t understand the power of compounding, nor do they have the mindset that facilitates being upset about an 8% annual return. If you frequent the social sphere of investing, you must remind yourself that it exists in a bubble - a vacuum.

No investor’s journey, or return profile, looks the same. We constantly overestimate how well others are doing. It’s a flaw in our perceptive abilities that has been accentuated through the advent of the internet. Some are willing to take on greater volatility to earn outsized returns. These people ought to be compensated for their risk, but equally suffer the consequences.

Below is a chart that shows three unique return series indexed from 100 over 30 years. They share an identical CAGR of 8%.

The white line (steady returns) earns a consistent 8% per year. The blue line (low returns with spike) earns a sub-par annual return, culminating in an incredible final year. The red line (volatile returns) has a high variance in annual returns with incredible peaks and gut-clenching drawdowns. These are naturally the extremes of what a typical return profile looks like but are illustrative of why a single year of performance is nothing to get worked up about or place too much emphasis on.

There is merit in the adage that you shouldn’t confuse investing your life savings with a hobby. As an avenue to channel your passions and something which is generally thought of as fun, investing can feel like a hobby during the good times. You wake up, your stocks are up, and your returns are great. One of your companies reports mediocre earnings, the market rewards it with a 5% intraday gain. You are winning, your friends are winning, and the media laps up coverage of investors who are enjoying an anomaly of single-year performance with unorthodox investing styles. Maybe a few “[insert name] is the new Buffett” articles surface.

It doesn’t feel like much of a hobby when this trend reverses. This is why we see such high exit rates from stock picking by individual investors during the downturn. Some of them scolded beyond repair, may never return as their bull market brains are left melting on the sidewalk.

I am a strong advocate of the notion that part of the joy of picking stocks is the challenge and the personal development that comes with it. You learn new skills, meet new people, learn more about the world, learn more about the psychological underpinnings of human behaviour, and learn more about your own mentality. Ardent adversaries of this idea will say that you are kidding yourself. That it’s not worth sacrificing the time and effort if you are not going to beat the index. I think there is no right answer here, but if there was it probably lies somewhere in between both certitudes. In the long run, we are all dead. Life is too short to criticize how others spend their time or rationalize their investment decisions.

I’ll conclude by sharing a passage from Howard Marks which seemed appropriate. Abdullah, the author of Mostly Borrowed Ideas, shared this passage with the apt expression “The person up 100% will not come back next year to tell you they are down 50%”.

“As the memo says, back in 1990, I had two interesting experiences, in short order. A certain value investment firm had a really terrible year. They were heavy in the banks, which were deep value, and the banks did terribly. And so, the head of the firm comes out and he says, “Well, if you want to be in the top 5% of money managers, you have to be willing to be in the bottom 5%.” My reaction was, “I don’t care if I’m in the top 5% in any given individual year, and my clients certainly are not willing to have me be in the bottom 5%, and neither am I.

Well, around the same time, I had dinner with one of my clients, Dave VanBenschoten, who ran the pension fund at General Mills. And he told me that he’d been doing it for 14 years, and in the 14 years, the General Mills equities had never been above the 27th percentile of the pension universe or below the 47th percentile. So, 27th to 47th, solidly in the second quartile every year for 14 years in a row. Where did that place them for the whole 14 years? Were they in the 27th or the 47th or maybe average it and maybe the 37th? No, they were in the 4th percentile. So how can a firm that’s never been out of the second quartile be up in the 4th percentile for the whole period? And the answer is, most people eventually shoot themselves in the foot. And, one or more terrible years can ruin a record for the long term”.

- Howard Marks

In the past, Marks has likened retail investing to amateur tennis. Like tennis, people can be successful investors by playing their own version of the game. What makes investing unique is that the court is shared by everyone at the same time. Regardless of which game you play, you are still competing with the professionals, whether you realise it or not. This echoes the writings of Charles Ellis from the 1970s. In 1975, Ellis wrote that “tennis was not one game but two. One game of tennis is played by professionals and a very few gifted amateurs; the other is played by all the rest of us”. He suggests the former play a “winner’s game” where the outcome is decided by the skill of the players while the latter play the “loser’s game” where the outcome is decided by how many unforced errors each player makes.

“Pros win serves, hit aces and score points after long, exciting rallies; successful amateurs on the other hand simply return the ball to their opponent until they almost inevitably make an unforced error.”

- Charles Ellis

There will always be someone doing better than you, getting rich faster, and finding more success. Investing success should be measured in decades and more success would come from taking the time to mind your own business and focus on what lessons you should not be learning as you develop your skillset.

Thanks for reading,

Conor

1

YTD Total Returns of the SPY, ACWI, VTI, and QQQ ETFs, as of November 25th market close.

A few weeks ago I read a piece by Joe Wiggins that asked why investors play low-probability games. He said, “Being an investor is like walking into a casino and seeing everyone crowded around a table playing the game with the worst odds of success”. The odds of “positive outcomes are poor, yet we carry on regardless”, he continues. There is some subtext to unpack here of course. What is a ‘positive outcome’ to you might look different to me. For some, it’s an ambiguous desire to beat inflation, earn more than a checking account interest rate, or compound wealth over time. For others, it’s a desire to ‘beat the market’ or an equivalent barometer of success.

In the case of the latter, Joe is astutely correct. The odds of an individual earning a surplus return to the S&P 500 over a lifetime are incredibly slim. Yet they attempt it anyway. Wiggins’ essay is concise and proceeds to list several reasons why investors are drawn to low-probability games. I am particularly fond of his concluding remark.

“As investors we spend far too much time focusing on how to win the game we are playing, rather than understanding the reasons we are playing at all”.

- Joe Wiggins, Why Do Investors Play Low Probability Games?

Just as investors persist in chasing improbable gains, our daily decisions are often marked by similar contradictions where small rewards lure us into significant risks. In general, we should avoid putting ourselves in situations with high risk and low reward. The earlier examples have two things in common; the perceived probability of a negative outcome often feels small, negligible even, and the risk-to-reward dynamic is skewed, with the potential risks far outweighing the minimal rewards. We convince ourselves that "it won't happen to me”.

Humans have a penchant for cognitive dissonance. When we hold two contradictory beliefs or feelings we are motivated to pick a winner; thus eliminating inconsistency and reducing anxiety as we alter our beliefs or actions to complement the desired outcome.

Every smoker knows that smoking is harmful. Every smoker relishes the soothing hit of dopamine that coats their brain’s reward system when they take a drag. The desire to feel that dopamine is so strong that the addiction triumphs; and so continuing to smoke despite being aware of its harm is an example of cognitive dissonance. Emotions are an unfathomably powerful motivator. They are the world’s greatest gaslighter. They are capable of blinding us to reality in pursuit of desire.

Something which is intrinsically linked to emotion is our fundamental belief system; whether born of culture, environment, or personal experience, it shapes how we view the world and often overrides logic. These beliefs tend to encourage cognitive dissonance too. Factors like our tendency to be risk-averse, or our need to feel like we are in control.

Road vs Air

These two foundational human attributes are often in conflict with the world around us. The difference in how safe we feel when flying on commercial aircraft vs. driving down the motorway is a great example. Air travel is the safest form of transport. The rate of incidents per journey is significantly lower than a road-bound vehicle. Yet, it’s common to know someone afraid of flying and rare to know someone unwilling to step foot in a car.

Travel 100,000 miles by car and there is a ~4.8% chance you will be injured to some degree1. The same distance by aircraft is as good as 0%. The World Bank estimates that there are 0.05 fatalities per million aircraft passengers. In other words, about 1 fatality for every 20 million passengers. They also estimate there are 135 fatalities per million passengers for vehicles or about 1 fatality for every 7,407 passengers. Ceteris paribus, you are more likely to be injured in a vehicle than an aircraft.

Vehicular death rates vary globally. Developed nations with better infrastructure and rule of law typically see fewer fatalities. But the point stands, it’s much safer to travel by air. Where we humans get hung up is that the negative outcome of an incident in the air is near certain death. In a binary fashion, we either survive or face catastrophe. On the other hand, the range of outcomes of an incident in a car is more palatable. This is all to say that we are generally irrational in how we perceive the relationship between risk and reward or probabilities.

DCF: Dillusion of Control Framework

The discounted cash flow model is a means to an end. It can also help us understand how we deceive ourselves in pursuit of the need to be in control. You plug in some inputs and those inputs estimate the fair value of an investment based on its expected future cash flows, adjusted to account for the time value of money. A reverse discounted cash flow model flips the hierarchy so that you start with a current value and work backwards to find the required inputs for said current valuation. In other words, you are measuring the implied expectations and deciding if they are acceptable.

They can be immensely useful, and equally precarious. Investing has a scare factor. It’s uncertain, the future is unknowable, and there is an infinite concoction of variables that can influence the outcome both within and outside the company’s control. The most influential factor is your own decision-making and temperament.

Wouldn’t it be nice if there was a tool that we plug numbers into and tells us if something is a buy or a sell at the current price? Doesn’t that just make life easier? It washes all of the uncertainty away. Investors can subconsciously fall into the trap of forgetting that models are not a get-out-of-uncertainty-free card.

Ben Graham’s concept of ‘intrinsic value’, later popularised by Warren Buffett, is flawed in that it’s entirely conjectural. Both intrinsic value and fair value are theoretical constructs, meaning they aren’t “real” in the sense that they’re not fixed or universally agreed upon. Instead, they represent estimates of what an asset is truly worth, based on different models, assumptions, and perspectives. In short, while the methodology used to derive an output is quantitative, the output itself is then subject to subjectivity. It’s a matter of opinion, and the saying goes that opinions are like arseholes…. everybody has one.

An investor will never be in control of the market. The best they can do is succumb to that reality and find a way to deal with it. Focus on the variables they do have control over. Ensure they have a process which eliminates as much undesired human behaviour as possible. One that nurtures rational thinking and common sense. If you know you are sailing through the waters of Siren, the best thing to do is tie yourself to the mast or cover your ears.

Something as simple as a cash flow model, when relied upon too extensively, can confound the fear of not being in control and create the illusion that we are.

High-Risk Low-Probability

Until now i’ve used the notion of stakes and risk or reward and probability interchangeably, but they are not the same. The terms high stakes, low reward and high risk, low probability are different dimensions of decision-making that have some overlapping matter. The best way I can describe it is through the roulette table.

High Stakes, Low Reward: You play by betting on red or black

• Stakes: You can bet a significant amount of money (high stakes), but the potential reward is minimal (only doubling your bet). The odds of winning are close to 50%.

• Low Reward: Even if you win, the reward is small compared to the amount at risk. You double your money, but the risk (losing your entire bet) is large for what you stand to gain.

High Risk, Low Probability: You play by betting on a single number

• Risk: The risk is still high (you could lose everything you bet), but the reward is significantly higher, at 35 times your bet.

• Low Probability: The reward may be higher, but now the probability of winning is extremely low. Depending on where you are in the world, the probability is 1 in 37 (2.7%) or 1 in 38 (2.63%).

It can be useful to tackle decision-making through both lenses, but I would argue in favour of taking a risk-probability approach. The idea of ‘reward’ flirts with subjectivity while ‘probability’ is closer to a universal truth. Whatever game you find yourself contemplating, it’s best to think about what you stand to lose, what you stand to gain, and what the probability of a positive and negative outcome is.

Why Are We Drawn to Low Probability?

Taking one of Wiggins’ examples, he suggests that being “uncommonly skilful” is “the only reason to engage in a game where the odds for the average player are poor”. If a peak Roger Federer participated in a knock-out tennis tournament of 100 players, the basic odds of success (winning the competition) is 1 in 100 (1%) for the average player. For Federer, they would be considerably higher, and so he should play. I don’t know exactly how to calculate that, but it’s undoubtedly true.

The perception of elevated skill, accurate or not, can result in willful ignorance. Through that ignorance, we may be motivated to engage in activities in which the probability of success is considerably lower than what we believe. The problem with investing, in particular, is that everyone thinks they are the 5% when it comes to beating the market. Despite knowing the odds of success are slim, seasoned investors believe they can defy the odds anyway. That’s willful ignorance, but what about plain old ignorance?

The term ‘ignorance is bliss’ means that you don’t know what you don’t know. Your understanding of the game is so limited, that you are deeply unaware of your own ignorance. Much like you shouldn’t scold a child for repeating something a parent has said, it’s hard to criticise the blissfully unaware. Only through experience, can ignorance be chipped away. I believe the trajectory for many investors is they start investing with the desire to beat the market because they don’t know any better. Over time, every rational investor appreciates how difficult this is in reality. They will reach a crossroads, and the paths diverge:

• Willful ignorance: They continue under the belief that they will defy the odds.

• Graceful acceptance: They continue despite the realization that they are unlikely to beat the market. Perhaps they change their goals to be less centred around ‘beating the market’. For many, investing is fun. It’s a way to understand the world while growing wealth over time. Despite what some might say, there is not only one reason to invest.

• Beach mode: They continue to invest, but reallocate into funds or other passive investments. They exit, or significantly reduce, their exposure to individual stocks and settle for ‘market’ returns. They have more time to enjoy their limited time on earth.

Sometimes, the fact we know the odds of success are so low creates an element of excitement. Remember the internet sensation that was the ‘bottle flip’ challenge? You take a water bottle by the neck, flip it, and try to make it land upright. Before realising the ‘trick’ to make it land upright every time, it’s a difficult task. The odds of success are low, but it’s fun so we try it another 20 times. What about carnival games? By this point, I think everyone knows each game at a carnival has an element of rigging to ensure customers seldom win and take home a prize. We know this, we know the odds of success are slim, but that makes it fun and that much more satisfying when we do win. With investing, however, fun is usually not a great sign. If you are passionate about it, it can certainly be enjoyable, but as Wiggins correctly remarks, “The challenge for investors is that it is the boring stuff that works. And nobody wants to play a dull game”.

Social proof is another reason we are drawn to low probability. The idea of herd mentality is well-studied. If a group of our peers do something, then we feel less reservation about doing it too. This creates an environment whereby outcomes are thought of less in terms of “how likely is this” and more in terms of “wow, this is what I can win”. Consider the lottery. The greatest visibility is given to those who overcome the odds and win. You don’t hear anyone say “remember that guy who almost won the lottery?”. If you make it to the Olympics and come 10th in your chosen sport, then you are in the top 10 of that sport in the world. An incredible achievement. Yet, outside of a niche circle of influence, nobody remembers you. To point to a more recent example, recall how aggressively the rise of NFTs entered the social sphere and how quickly and silently it left.

So long as there is evidence of people overcoming the odds, the idea that you can be the next person to do so will persist. The social proof of almost everything has grown exponentially since the birth of global media and social platforms. It’s why young adults are so desperate to live beyond their means. It’s why everyone thinks they can pick a few stocks and beat the market by reading a few books and 10-Ks. In bull markets, the inception phase of buying a stock is considered in terms of “how much money I will make” and less in terms of “what are odds this stock performs well over a given period”.

Ironically, it is usually when the bull market ends, things are less ‘fun’ and fewer people are harping about their YTD returns, that investors go through their most transformative reflection periods. Because you are no longer infatuated and occupied with the pleasure of feeling like a genius, you find yourself contemplating more often. “Where did I go wrong? How can I improve?”. This is true for all vocations in life. All experience is good experience, and hard times create stronger individuals.

Despite sometimes knowing the risks, humans are drawn to high-risk, low-reward activities due to emotional drivers, cognitive dissonance, and the illusion of control. Whether it’s investing, not wearing a seatbelt, or playing a rigged game, the lure of small rewards or perceived mastery keeps us engaged, even when logic suggests we should walk away.

Maintaining a state of mind that is resistant to being pulled towards hyperbole or despair is easier said than done. Thinking of games in terms of risk and probability is a rational person’s endevour, which is a challenge in and of itself. A challenge worthy of pursuit, if you ask me.

Thanks for reading,

Conor

As more knowledge is accumulated, the desire the use that newfound knowledge grows stronger. In an attempt to make use of it all, tasks become burdened with complexity. The path from student to mastery begins with favouring simplicity, then complexity, and concludes with simplicity. The reason students should learn from masters, and not intermediates, is that both place a high value on simplicity.

The character arc of the chef is a great example. A beginner starts out by learning the fundamentals, following recipes, and practising basic techniques. The intermediate expands their horizons, incorporates advanced techniques, and new flavour combinations, and overcomplicates. The master understands food so deeply that they can harness a few high-quality ingredients and techniques to create something seemingly understated in appearance, but incredible in flavour. Marco Pierre White once owned a restaurant that earned the accolade of three Michelin stars. In a move that was unprecedented at the time, he would later hand them back. As he matured in age and skill, he would frequently remark that the desire to return to simple cooking was his motivation.

“Simplicity is the secret to everything”, he would often say. “The more you add, the more you're taking away”. This is part of the reason why Italian food is held in such high acclaim. It focuses on the quality, not the quantity, of ingredients.

There are many great quotes like this. One of my favourites is a line from Coco Chanel, in which she suggests “Before you leave the house, look in the mirror and take one thing off”. The point is that no matter what skill or profession, the end game always appears to circle back to simplicity.

Let’s run through a couple of other examples. We’ve covered my favourite pastime, cooking, so now let’s migrate to my own profession; that of the product manager. A product manager’s role is multi-faceted. At its core it is about two things; understanding what users want and knowing how to translate that demand into a product and communicate the vision to an engineer. These two things are the simplest descriptions of the role and what both new and tenured managers will strive for. Somewhere in between, there is a hodgepodge of advanced user flows, features nobody asked for, unnecessarily complicated UI, analysis paralysis, and product bloat. The temptation to overcomplicate has not yet succumbed to the even greater temptation to strip away unwanted complexity.

Consider the iPhone. It’s a technological wonder. It’s many human’s third arm and second brain. Yet it’s not the most technically advanced phone on the market. It hasn’t been for some time. What it does better than any other product in the market, and dare I say the world, is package up technology which is so incomprehensibly complex to the common individual in a manner that is so sophisticatedly simple.

Lastly let’s consider one of my greater passions in life, investing. Every single investor follows the Good Will Hunting Arc (see below).

You start at a crossroads with a seemingly endless number of paths to explore. Fundamental analysis, technical analysis, value investing, accounting, benchmarking, long-term, short-term, derivatives, discounted cash flows, models, macro, and the list goes on. This tends to be when you are at your most humble. When you pick up a few things you likely go through various phases. Like teenagers going through a goth or chav moment, investors will find themself switching genres often as they try to find the style that suits their temperament. I am sure everyone goes through a small cap phase. Some begin to fetishize macro and illiquid deep-value opportunities. As you pick up new knowledge, you try your best to cram as much of it into your process as possible.

But a fatter checklist doesn’t equate to better returns. Another way to frame it is simply by the transition of learning that it’s incredibly difficult to beat the market, to then feeling confident you can do it over the long term, to ultimately appreciating the difficulty of such an act. I am no beginner, but I am no master either. Over time I have come to appreciate that I’d rather optimise for spending as little time in front of a screen as possible. Do the heavy work up front, keep an active watchlist of opportunities, track the handful of core KPIs that make the business tick for each company, understand the thesis, be prepared to re-allocate if it derails or you feel you were wrong, keep up to date each quarter, and let time do its thing. Stay away from CNBC, avoid placing too much emphasis on macro, and aim to check your returns as infrequently as possible. A richer news diet is more likely to congest your clarity. Like information-cholesterol for the brain.

Beginners and masters share one thing in common; a penchant for simplicity. They are two different forms of desire. The beginners want things to be communicated simply so that they can understand. The master wants that too, but the differences lie in from their ability to take a complex subject matter and communicate it as though it were simple. When you hear someone say “they make it look easy!” it’s because that person has a deep enough level of understanding in their craft to do so.

“Simplicity is the ultimate sophistication. It takes a lot of hard work to make something simple, to truly understand the underlying challenges and come up with elegant solutions. It's not just minimalism or the absence of clutter. It involves digging through the depth of complexity. To be truly simple, you have to go really deep. [You have to deeply understand the essence of a product in order to be able to get rid of the parts that are not essential”. - Steve Jobs

A student asks two mentors a question. The intermediate will respond with an answer that leaves the beginner with more questions. The master will respond in a way that answers the question.

How do I cook a perfect steak? They may ask.

Answer 1: "To cook the perfect steak, start by choosing the right cut, like a ribeye or filet mignon, with marbling. Make sure the steak is at room temperature before cooking. Season it with a mix of kosher salt, black pepper, garlic powder, and a hint of rosemary. Use a cast-iron skillet, and preheat it to exactly 260°C. Sear the steak for exactly 2 minutes on each side, then baste it with a mixture of butter, thyme, and crushed garlic. After that, transfer it to a 190°C oven and use a meat thermometer to ensure the internal temperature reaches 55°C for medium-rare. Let it rest for 5-7 minutes under a foil tent to redistribute the juices. Serve it on a warm plate with a side of homemade chimichurri sauce and garnish with sea salt flakes."

Answer 2: "Season it well, cook it hot and fast, and let it rest before eating."

As for why people tend to gravitate back to simplicity, I think there comes a point when the value gained from time spent learning a particular subject matter begins to diminish.

At the start the rate of growth is incredible. Everything is new. By the time that begins to peak the newness dissipates, complexity fades, and a desire for elegance comes to the fore. The new challenge is taking what you know, and making it seem simple. That is the paradox of the complexity curve.

Thanks for reading,

Conor