Investment Journals: Not for the Weak

Investment Journals: Not for the Weak

– Hi everybody, I’m Christian
Ryther of Curreen Capital, and today I wanna help
you be a better investor by using an investment journal. Now I think that the investment journal is an underutilized tool
that is incredibly powerful to make you a better investor. I think that it is mis-underestimated because it’s sort of like
double book entry accounting, or using a cash register,
where a big part of the benefit comes from reducing errors or mistakes. And, as humans, we don’t like to think about our own mistakes. It doesn’t fit the narrative
that our ego wants to have, which is that we’re wonderful people who are basically perfect all the time. And we’re consistent in our
thoughts, and yadda-yadda-yadda. It’s all not true but it’s
the way our brain works to keep us sane on this
little ball of rock floating through space. But your job, as an investor, is to make good decisions
under uncertainty, and to do that you have to have
an accurate view of reality and an accurate view of yourself. And this is a major way
that you can get there. So, what do I mean by
an investment journal? I’ll give you an example. Let’s say, I want to buy shares of Nilorn ’cause I think it’s cheap. So, what I write down on one
page of my investment journal is I start, today’s date, May 21st, 2019. I write down all the stocks that I own and I own seven so, that actually fits without some sort of microscopic font. Seven stocks and then
how much cash we have. What is the stock price today, what is my estimate of my
upside to downside ratio of each position today, and
what percentage of the portfolio is invested in each stock. So that’s, snapshot at the top. And then I write, should I
buy more shares of Nilorn? And I got into why. I think that the stock
price is very attractive, the upside to downside
ratio is very attractive, the CEO is a good manager, the business continues to be strong, operations continue to
go well, this beats cash. This is the kind of stock
that I am here to buy. It fits all of my three
criteria, duh-duh-duh-duh. So I’ve set out my thoughts of this is why I want to buy this now. And then I go through the
exercise of writing a pre-mortem. I say, okay, I bought this
stock two years ago in 2019, now it’s summer 2021, and it
has been a complete disaster. What went wrong? The CEO died and was replaced
by some mediocre person because the private equity
company that runs it isn’t willing to pay up for a good CEO. Private equity company sold out to some terrible company at a low bid. There was a recession in
Europe and earnings collapsed. Internet retailers beat out
bricks and mortar retailers and internet retailers don’t
care about what tags they use. The stock market collapsed
and I wanted to have the money that I put into Nilorn
and I could’ve bought all these other opportunities. I write out all of those
potential downsides. I write them out explicitly
in my pre-mortem. And one of the benefits I get from this, of having written out what I like, and then brainstorming
what could go wrong, is it often gives me questions
that I can actually answer. Like, if I’m worried
about some competitor, I write that down in that pre-mortem, and then I can go say, you know, I’m gonna put down my investment journal, and go try to answer that question and I go do some research. So it’s focusing my attention onto areas that I probably, almost certainly,
wasn’t looking at before. ‘Cause if I was looking at them before, I’m not really worried about them, or I’ve stopped doing work
’cause I’m so worried about them. So this will redirect
your attention to areas, which are actually very important. I think a lot of the time,
as people, as investors, we spend 80% of our time
looking at one thing. Sort of ignore something else, even though that one thing
might be worth more than 20% of our time that we spent on it, it might be worth something like 50. But if we don’t redirect our attention, we’re gonna end up missing it. This handy little tool prevents you from being stupid in that way. I know, you’re not
stupid, everyone else is, but this still helps. That’s one benefit is, makes
me set out my thinking, which can sometimes help
me clarify my thinking and make me realize maybe I
didn’t know as much as I should. It helps me redirect my
focus, perhaps to some risks, which I glossed over, and then it allows me to go do the work and try to answer some of those
questions that have come up. So it’s raises questions
and maybe gets me to think differently than I would have. Then I write down, well
after having my pros and my cons listed out, and
doing the work to try to answer some of the questions
that may have bubbled up, do I want to, in this
case, buy more Nilorn? Do I want to buy more shares of this? And sometimes, I start
writing, and when I get to that I’m like, “Actually, no.” The thing that I came here to do, that I would’ve done if I
hadn’t put pen to paper, I no longer want to do
and I write that down. No, I’m not going to do this. I’m worried about X, Y, Z,
and maybe I will watch this. Like, this is the thing that matters and I will continue to watch
this and it gives me a trigger. Or I say, “Yes, I do
want to buy this stock.” and now, I’m done for the day. Next day, I come back and
I report like, “I bought.” or it takes me another
week, or another month, or something like that
’cause it’s a liquid. And I say, “Okay, I
bought X-thousand shares “at X-dollars per share.” Whatever, and I write down. So now I have a report, the
investment journal has helped to clarify my thinking,
bring up potential risks that I may have been glossing over, and to redirect my focus to areas which are very relevant
to making my decision. All of that is great, that
is all great day one stuff that you get out of an investment journal. And that alone is reason enough to do it. And to spend the time, which
might be an hour or two, have that discipline,
write down your thinking, and that’s great. What emerges over time is even better. So not just do you get that day one boost to your performance from
reduced mistake probability and enhanced thinking,
but now you have a record of what you were thinking, what
your portfolio looked like, how you evaluated that portfolio on specific days in the past. Now that is not something
that is easy to recreate. You might be able to go back
and get the stock prices of everything that you owned, but it’s not a trivial
thing to do to be like, “Well, how many shares did I
own three years ago in March?” That’s not an easy thing. Maybe you can go on to your
interactive broker’s account, type in the date, and you’ll get it. Okay, maybe you can get that. Those prices might no longer
be as relevant as they were because of spin-offs or something, so the data might get corrupted if you’re on Yahoo Finance
or something like that. But maybe you can get that. To try to get what you thought
the upside to downside ratio, or however you look at attractiveness, on that specific date three
years ago, good luck with that. If you’re anything like me,
your models have been updated, or even if they’re not updated,
now you’ve got 500 models for every company in your
(chuckles) internet folder. Okay, cool. Maybe, you can get the
upside to downside ratios, but, again, you’re gonna have to go in, find that specific version of the file, look it up, type in the
price, no, no, no, no. That’s effortful, but with
this, I can just flip through. This date, that date, the other date. Sometimes questions will
pop up and I can think like, “Hey, what was I thinking back in March?” Maybe you can answer
that by spending an hour going through your files. With this, I can answer it in one minute. So that record is useful and it’s useful because it gives you the portfolio, what you thought about the portfolio, and, also, what you were thinking about that specific opportunity, and maybe whatever else
you write in on that date. And this, this is priceless. Jim Simons of Renaissance Technologies has talked about how a few
decades ago they decided to just follow whatever the
computer program said to do, and that has been super helpful. And the reason they did that is because you don’t have a sense,
or any memory whatsoever, of what your gut would’ve
said two decades ago when you were looking at
a situation like this. With this, you can
actually go back and see what was my gut telling me two years ago, three years ago, whatever. You actually have a
record of what your gut, what you felt, and what
you actually thought. And what you’ll learn is
your memory is terrible at telling you what your
gut actually thought. This becomes powerful for you for understanding yourself
and for answering questions that otherwise remain rhetorical. And I’ll give you some examples. So I’ve looked back at
the almost six years that I’ve been running the
fund, and I was able to ask, “Well, when has the
portfolio fallen apart?” And there had been four times. And, what did the portfolio
look like before that happened? Why did that happen? And is there anything
I can learn from that? And to try to do that without this, it would be a massive undertaking. But with this, it’s something I can do in an hour or two on a random afternoon. The cost, the effortful
time cost of answering a lot of these questions is dramatically reduced because you have this and, in some cases, it’s only possible because you have this. So I can actually answer like,
“What was my state of mind?” or, “How did I view the
portfolio and how did I feel “about the portfolio
before it fell apart?” And are there lessons
that I can take from that? I’ve looked back at all of my investments and where I’ve made mistakes, I can actually read what I was
thinking about those stocks. And I can tell, did I
see the errors coming, or the bad things coming, or
did I totally ignore them? It gives me a better sense for, should I beat myself up a lot or not? Good to know. Before the stock market has fallen apart, which it did in early 2016, and late 2018. What did the portfolio look like, and did I want to buy anything? And how good was my thinking
on the thing I wanted to buy before the stock market fell apart? And that’s helped me to
really internalize the idea of stop worrying about the
stock market, do good work. Yes, it’s more likely
that I’ll do sloppy work when the stock prices are high and I’m sort of itching to act. But also, if I do good
work, I can buy something before the market falls
apart and it still works out. This is very powerful and
that’s relevant for me. You can answer questions like this that are relevant for
you and your process. There are somethings
that you can only answer if you have an investment journal because you’ve written down
your thoughts before you act. It’s a goldmine, and it’s a
tool that you will only have if you take the time, and are disciplined, and put pen to paper. So it doesn’t cost you any money really. 20 bucks, maybe, if you overpay
for a semi-fancy notepad. But the value that you get
from it is limited only to your own curiosity about yourself. And the effort that you’ve put in to give yourself a record to analyze. So I encourage you to use this. Should help you think more clearly, reduce the errors that you make, and then it becomes
this invaluable resource for analyzing yourself
and how your strategy has interacted with the market over time. How else can you look and say, like, before my portfolio did really
well, what did it look like? What did it look like
before it did really poorly? What can I learn from that? These are things that are
very, very difficult to answer in any other way, and they’re
just some of the benefits that you can get from writing
an investment journal. So I encourage you to do it. Not because I want to create
more competition for myself, but (chuckles) because I want
you to be a better investor. So go out there, do this. This is something that great
investors, like Peter Lynch, has written about how he’s written down, what he writes down on all the
investments that he tracks. George Soros’s “Alchemy of Finance” is basically one big investment journal packaged into book form. So great investors use this, even if they’re very
different types of investors, they use something similar
to an investment journal to make them better. And this can make you better, too. It’s not something that people
do because they’re weak, it’s something that elite performers do to increase their returns,
improve their investing process. So get out there, start
writing, good luck.

9 thoughts on “Investment Journals: Not for the Weak

  1. Thanks for another great video. It's refreshing to see an investment channel on YouTube that focuses on disciplined and repeatable processes instead of "buy this stock because it's about to pop" nonsense.

  2. Thank you! I’ll be using this method ASAP. Been a while between this and previous videos!

    Could you do a video on how you track your portfolio returns and distinguishing between price movements vs real information that results in constructive feedback to improve your performance? Especially since you run a fun and reporting is a part of how you communicates to your. Liang’s. Also specifics like software you use or if you outsource to accountants etc. thanks

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