September 10, 2023
Investor Lee Freeman-Shor hired 45 of the world’s top investors and gave each between $20 million and $150 million to invest. He instructed each one to invest only in their ten best ideas. Freeman-Shor then examined the 1,866 investments made by this elite group over the course of June 2006 to October 2013. The result is the book, The Art of Execution: How the world’s best investors get it wrong and still make millions (2015).
Freeman-Shor explains that the best ideas of the best investors could reasonably be expected to generate excellent long-term results. Freeman-Shor:
These were ideas that they had significant confidence in, and were often the result of hundreds of hours of research by some of the smartest people on the planet.
Given all this, I was sure that I would make a lot of money.
It might surprise you, then, to be told that most of their investments lost money.
Out of 1,866 investments, a total of 920—about 49% of the total—made money.
However, almost all of these investors made money. How was this possible? Freeman-Shor studied every single trade in order to analyze what had happened.
Freeman-Shor quotes Leo Melamed, a successful futures trader:
I could be wrong 60% of the time and come out a big winner. The key is money management.
Paul Tudor Jones:
The reason for all the Wall Street success stories he knew was down to: money management, money management, money management.
It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.
Here’s the outline for the book:
PART I. I’M LOSING (WHAT SHOULD I DO?)
- The Rabbits: Caught in the Capital Impairment
- The Assassins: The Art of Killing Losses
- The Hunters: Pursuing Losing Shares
PART II. I’M WINNING (WHAT SHOULD I DO?)
- The Raiders: Snatching at Treasure
- The Connoisseurs: Enjoying Every Last Drop
CONCLUSION: THE HABITS OF SUCCESS
THE WINNER’S CHECKLIST
- Best ideas only
- Position size matters
- Be greedy when winning
- Materially adapt when you are losing
- Only invest in liquid stocks
THE LOSER’S CHECKLIST
- Invest in lots of ideas
- Invest a small amount in each idea
- Take small profits
- Stay in an investment idea and refuse to adapt when losing
- Do not consider liquidity
PART I. I’M LOSING—WHAT SHOULD I DO?
The Rabbits: Caught in the Capital Impairment
Freeman-Shor remarks that the Rabbits ended up being the least successful investors working for him, despite the fact that these were all prestigious investors.
Freeman-Shor gives a case study: Vyke Communications, a UK-based company that specialized in software that allowed users to make phone calls and send text messages. The investor bought shares on October 31, 2007 at £2.10. When the price fell, the investor bought more. This was the right move if the investor still believed in the idea. However, the stock kept falling and the investor decided to stay invested. Two and a half years later on July 2, 2010, the investor sold the entire position at £0.02, for a 99% loss.
Another case study: Vostok Nafta, an investment company listed on the Swedish stock exchange that invests in assets in the Commonwealth of Independent States, a loose associtaion of some of the countries that used to make up the USSR. This investor bought shares April 11, 2008, at £9.14. Five months later, he sold at £3.95, for a loss of 57%. Freeman-Shor notes that the only reason the investor sold was because Free-Shor was pressuring him to either buy more or sell.
Yet another case study: Raymarine, a company that specializes in marine electronics. An investor bought shares on May 31, 2007, at £4.27. 23 months later the price had collapsed, but the investor still believed in the idea. Eventually, partly due to pressure, the investor sold his entire position on April 15, 2009, at £0.17. This was a loss of 96%.
Where did the Rabbits go wrong? Freeman-Shor states ten reasons for why the Rabbits failed:
(1) The narrative fallacy framing bias
Framing bias, discovered by Amos Tversky and Daniel Kahneman, means that people tend to reach a conclusion based on the way a problem is presented. In the case of the Rabbits, they allowed their favorite types of investment to influence how they viewed the stock in question. The Rabbits still believed in the investment thesis for a stock that had fallen a great deal and so they still believed they would make money going forward. Freeman-Shor:
The Rabbits are a great example of how professional investors often react to a black-swan event—an event they did not anticipate and which has negatively impacted their investment story. They tend to dismiss it.
(2) Primacy error
Primacy error means that first impressions have a lasting and disproportional effect on a person. Because the Rabbits had a very positive first impression, they failed to update their investment thesis to incorporate new information.
Related to primacy error is anchoring. Rabbits tended to anchor to initial information, being very slow to change their minds. Freeman-Shor:
It took one Rabbit two and a half years to change his mind on Vyke, and another Rabbit almost two years to react to Raymarine’s decline. The other never changed his mind on Vostok. Similar stubbornness occurred on many other investments.
(4) Endowment bias
As humans, we tend to overvalue our own possessions, which includes the investments we’ve made.
When there are large losses that happen quickly, they are almost impossible to accept. It’s easier to hold on to a losing position. Rabbits did not want to admit the loss by selling because they were too fixated on what they had paid for the stock.
(5) The pull of the crowd
There were many other investors who got burned on the same investments that the Rabbits got burned on. This could have contributed further to the Rabbits being unable to admit their error and sell. Freeman-Shor quotes John Maynard Keynes:
It is the long-term investor… who will in practice come in for most criticism… if in the short run he is unsuccessful, which is very likely, he will not receive much mercy. Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.
Freeman-Shor says that the Rabbits were more interested in being right than in making money. Many professional investors are this way.
The Rabbits simply could not admit that they were wrong. Freeman-Shor observes:
The fact is, the greatest minds on the planet can be wrong. My findings suggest you should expect to be wrong at least half of the time. The very best investment minds are!
(7) Self-attribution bias
Self-attribution bias means that we blame others or external factors for our misfortunes but take full credit when things go well. This is why we tend not to learn from past mistakes, but to keep repeating them.
The Rabbits, writes Freeman-Shor, tended to blame Mr. Market (“The market is being stupid”) or Mr. Unlucky (“It wasn’t muy fault, I was unlucky because of XYZ that no one could have foreseen”).
(8) The wrong information
Because many of the Rabbits had been professionally investing for a couple of decades, controlling a significant amount of assets, they had Rolodexes to die for. When they found the ‘story’ behind an investment being challenged, they liked nothing better than picking up the phone and dialling the CEO on his or her personal number to get to the bottom of things. Despite being reassured by the CEO that the setback was merely a bump in the road and the media was making a mountain out of a mole hill, the Rabbits would do nothing. They neither bought more shares nor sold their holdings.
A hugely appealing temptation for more information comes from the need to abrogate responsibility in times of crisis. It is very common when a difficult decision has to be made to see the decision-maker involving more people. The more people involved, the more they can relax because if it goes wrong it was not their fault.
(9) Too big to fail
Like many investors, Rabbits found it far more difficult to walk away from a large losing investment than a small losing investment.
(10) The gambler’s fallacy
The gambler’s fallacy is the mistaken belief that after a period of poor performance, a given stock was due to perform well.
Each coin toss in a series has a 50/50 chance of coming up heads and each toss is independent of prior tosses. The gambler’s fallacy ignores this and instead involves the belief that, after a series of tails, the next toss was likely to be heads. But there’s only a 50/50 chance of this because each toss is independent.
What could the Rabbits have done differently?
The bad news is, everyone can be a Rabbit. The good news is, no one needs to be. There are a few simple things they could have done to overcome their problems.
(1) Always have a plan.
Investing is all about probabilities. Whether you invest should depend on the odds and the edge you think you have. Given the odds and your edge you should know exactly what you are going to do if the stock you are investing in falls or rises by 20%, 50% and so on.
When faced with a painful loss-making position, most people do nothing. They turn into a Rabbit and procrastinate, letting all their biases play havoc with their decision-making, hoping time will resolve their issues so they don’t have to.
It’s essential to have a plan.
(2) Sell or buy more
The only solution to a losing situation is to sell out or significantly increase your stake.
Freeman-Shor says the investor needs to ask himself or herself a key question:
If I had a blank piece of paper and were looking to invest today, would I buy into that stock given what I now know?
If the answer is “no,” then the investor must sell. If the answer is “yes,” then the investor should significantly add to the position.
Freeman-Shor notes that legendary investor Peter Lynch would (i) sell if the fundamentals were worse but the price had increased or (ii) buy if the fundamentals were better but the price had decreased. This is logical.
The real mistake the Rabbits made was doing nothing when their investment had declined in price. The logical thing is either to admit a mistake and sell, or buy more at the lower price. Freeman-Shor:
I have learnt that I cannot trust great investors to do the right thing when they are losing—like top athletes, they require coaching and management.
(3) Don’t go all in
As an investor, you should always be able to add to an investment if the price falls, assuming you have taken a fresh look at the investment and decided it’s a good one at the new price. This means you don’t want one position to become too large. Freeman-Shor quotes Mohnish Pabrai:
In my own portfolios at Pabrai Funds, I adjust for this [getting the odds wrong] by simply placing bets at 10% of assets for each bet. It is suboptimal, but it takes care of the Bet 6 being superior to Bet 2 problem. Many times the bottom three to four bets outperform the ones I felt the best about.
(4) Don’t be hasty to jump in, do be hasty to jump out
Cutting your losses early makes excellent sense, although it is difficult. Freeman-Shor writes the following, ending with a quote from Ned Davis:
Not least because selling out of a stock helps clear your head and enables you to assess a situation more objectively. It’s like taking a decongestion pill when suffering from a cold.
And buying slowly over time (known as dollar or pound-cost averaging), with a reduced position size at the outset, ensures you have plenty of ammunition left to load up when a share finally capitulates (assuming it does).
“[W]hat separates the winners from the losers? The answer is simple—the winners makes small mistakes while the losers make big mistakes.”
(5) Remember there is a difference between ‘being right’ and ‘making money’
In investing, a lot of success can be attributed to being in the right place at the right time—otherwise known as luck.
(6) Seek out opposition
When people lose money they don’t want to be told they are wrong…
What you should really do is to speak to someone with an opposing view.
Ideally you should also sell out of the stock while you do that, so that you have removed the emotional attachment of a vested interest. This mitigates endowment bias and you can always buy the stock back later.
If you would not put money to work in a particular share today, knowing what you now know, then you have to concede that the investment is dead—and if you haven’t already sold, you absolutely should now.
(7) Be humble
Freeman-Shor notes that the Rabbits, on the whole, were incredibly smart and never said, “I don’t know.”
But this is a very dangerous mindset to have. First, it assumes the market is made up of buyers and sellers that are not equally expert, when in fact many will be. Second, ‘knowing more’ often leads to a person not seeing the wood for the trees.
Throughout history there have been many examples that demonstrate this. My favourites are Harry Warner, of Warner Bros., who in 1927 said, “Who the hell wants to hear actors talk?”, and Thomas Watson, chairman of IBM, who in 1943 said, “I think there is a world market for maybe five computers.”
Experts are surprisingly bad at forecasting. Falling for your own hype can also often lead to mistakes that the least intelligent person in the world would not be capable of. Warren Buffett, when talking about the collapse of Long-Term Capital Management, marvelled at “10 or 15 guys with an average IQ of maybe 170 getting themselves into a position where they can lose all their money.”
And crowds are often surprisingly wise—the market can be right even when everyone who makes it up is individually wrong.
Freeman-Shor mentions the jelly beans in a jar experiment. If you take a jar full of jelly beans and ask everyone in a room of 50 or 60 to guess at how many jelly beans are in the jar, typically the average guess is very close to the truth. Moreover, the best individual guess is often not even as good as the average guess, and of course there are many individual guesses that are wildly wrong. This experiment is analogous to the stock market.
Again, only 49% of the best ideas from some of the best investors—those Freeman-Shor hired—ended up being right.
(8) Keep quiet and carry on
Some investors make the mistake of talking publicly about their investments and their anticipated returns. This makes it much more difficult to change their minds if new facts warrant it.
(9) Don’t underestimate the downside—adapt to it
Many Rabbits like stocks that could shoot for the moon. However, often such stocks can get wiped out if they don’t work. Freeman-Shor suggests treating such stocks as options: Size the position as if it were an option—almost like a venture capital investment—so that, if it works, you can do well, whereas if it doesn’t work, the loss will be contained.
(10) Be open to different kinds of story
Deep value investing can produce the highest long-term returns. Freeman-Shor:
Many studies have shown that stocks with the worst stories tend to produce the highest returns.
Stated differently, value investing—investing in cheap stocks that no one likes because they have terrible stories that led to their stock price falling—produce the highest returns over time.
(11) Get sick of sick notes
Freeman-Shor suggests getting familiar with the typical excuses investors like to offer:
- The ‘If only’ defence.
- The ‘I would have been right but for’ defence.
- The ‘It just hasn’t happened yet” defence.
- The ‘Who could have foreseen at the time I invested that XYZ would happen…’ defence.
- If it’s gone down this much already, it can’t go much lower.
- You can always tell when a stock hits rock bottom.
- Eventually they always come back.
- When it rebounds slightly, I’ll sell.
(12) Be suspicious of status.
Lastly, whether you work in the investment industry or are thinking about trusting your money to someone who does, there is a bonus moral in the story of the Rabbits: it is dangerous to assume that just because an investment professional is highly educated and has years of experience, he or she will be good at making money and getting the big calls right.
IT’S ALL ABOUT CAPITAL IMPAIRMENT
One of the reasons that the Rabbits held on to losing investments was fear of the unnkown: if they sold out, the shares might rally, and they would miss out. It was better to stick with a current loss than worry about that double-whammy.
This is known as ambiguity aversion, and describes why people prefer to stick with intolerable situations merely because a hypothetical alternative might be worse. Better the devil you know.
I believe that even the best investors often overlook the fact that a stock’s price would need a practically supernatural rise of 900% to break even if they have foolishly ridden it down 90% and done nothing.
THE LESSONS OF POKER
Stories are the biggest factor in determining what decisions we make. For the Rabbits, the stories in their heads led them to invest many millions in companies that ultimatley lost them and me vast amounts of money. Their actions post-investment were clouded by the story that led them to invest on day one.
The moral here is to try to avoid being blinded by your story. Above all, have a plan of action as to what you will do if you find yourself in a losing position, even if you still think you are right.
The key difference between the Rabbits and successful investors in this book is that when the Rabbits were losing they did nothing. As we will see with the Assassins and Hunters, they acted decisively to bail themselves out of the holes they found themselves in.
Freeman-Shor quotes Darwin:
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.
Freeman-Shor then writes:
If only the Rabbits had played poker. Any poker player knows that it is not how many hands you win that matters, it’s how much you win when you win, and how much you lose when you lose.
Each hand in poker represents a story and the goal for a poker player is to try to make money with whatever story they have been given—good or bad. If the story is poor then you don’t stick with it and throw money at the problem; the odds are stacked against you. You fold your hand, cut your losses and live to fight another day.
Likewise, if you are dealt a good hand but then see the flop and realise the hand is now nowhere near as strong as you thought, you fold.
The Assassins: The Art of Killing Losses
Freeman-Shor quotes the legendary investor Warren Buffett’s rules for investing success:
Rule No. 1—Never lose money.
Rule No. 2—Never forget rule No.1.
Freeman-Shor then explains:
The Assassins are the investors who really lived and breathed this principle while working for me. When it came to selling losing positions so as to preserve their capital they were ruthless, like cold-hearted hitmen, pulling the trigger without emotion. Then they carried on with their lives like nothing had happened.
Hedge fund titan Stanley Druckenmiller had this to say about fellow hedge fund titan George Soros.
[He is] the best loss taker I have seen. He doesn’t care whether he wins or loses on a trade. If a trade doesn’t work, he’s confident enough about his ability to win on other trades that he can easily walk away from the position.
Freeman-Shor explains that successful investing is all about asymmetric returns:
…winning is about ensuring the upside return potential is significantly greater than the downside potential loss.
Despite that you might imagine, in reality we can all be as cold and ruthless as the Assassins.
What I liked about the Assassins was that they lived by a pair of sacred rules.
The rules were derived from their own experience and beliefs, and the key to their success was that when they were losing they would always let the rules, not their emotions or feelings, drive their decision.
They knew that when faced with the uncertainty that naturally follows when the market has turned against them, they could not rely on themselves to do the right thing.
They therefore committed to becoming slaves to the rules. When a loss occurred they would follow their commandments to the letter.
Importantly, these two rules had been well thought through when the Assassins were in an emotionally ‘cold state’. They planned well in advance; before they invested, they knew what they would do afterwards. They did this because they knew that when push came to shove they were likely to make poor decisions in a ‘hot’ (or emotionally charged) state of mind.
THE CODE OF THE ASSASSINS
(1) Kill all losers at 20-33%.
The Assassins know that it’s very tempting, when it comes time to kill a losing trade, to wait. That’s why they used a device: the stop-loss. Freeman-Shor:
The Assassins’ rules required them to put a stop-loss in place at the same time they they bought any share. If the stop-loss was triggered by a share price going down a certain amount, it automatically sold their entire stake.
Freeman-Shor comments that some investors use a “review” instead of a stop-loss, but that a stop-loss is often better. Freeman-Shor continues:
Legendary investor and art collector Roy Neuberger, whose investment firm Neuberger Berman bears his name, credits the 10% rule as part of the reason for his success. He always cuts his losses when they hit 10%—no matter what. Recognise your mistakes early and take immediate action was his mantra.
The Assassins’ rule was the same, but they despatched their losers at slightly different predetermined points depending on their own experience and preferences: almost always somewhere between 20% and 33% (it depended on the Assassin). Despite Neuberger’s rule, my findings support the Assassins’ approach. This range of stop-loss levels avoids you getting whipsawed while giving a realistic chance of being able to recover from the loss incurred.
Freeman-Shor offers a case study: Genmab, a Danish biotechnology company that specializes in creating human antibody treatments for people suffering from cancer. Two weeks after investing, the Assassin was down 30%. His stop-loss activated at -32% and he sold on Nvember 16, 2009, with the shares trading at £12.43, having originally bought the company on October 29, 2009, at £18.34. This was a good decision because the shares then fell another 49%. While it was tough to take a 30% loss so quickly, that was much better than a 65% loss.
Freeman-Shor gives another case study: Dods, a media company that provides information, organizes events, and does publishing. Dods had become the most trusted source for political data. An Assassin bought shares on December 29, 2006, at £0.51. Ten months later, his stop-loss at 39% sold out on October 31, 2007 at £0.31. After that, the stock fell another 63%. So the Assassin was clearly right to sell when his stop-loss had been triggered.
In the world of investments there is no such thing as a safe bet. If you invest in a company and think that it is bulletproof, I urge you to have an action plan to decide what to do when things go wrong—things often do.
The next case study: Royal Bank of Scotland. It is one of three banks in the UK that is permitted to issue UK banknotes. An Assassin bought shares on May 30, 2008, at £22.29. When the credit crisis started, this Assassin actually moved faster than his stop-loss, selling out at £18.62. This was a loss of 16%. The stock then lost a further 82%. Good decision by this assassin.
(2) Kill losers after a fixed amount of time.
Freeman-Shor explains the logic of this rule: Time is money.
Being in a losing position too long—even if the size of that loss hasn’t hit 20% or more—can have a devastating effect on your wealth. This was something the Assassins were acutely aware of.
DON’T SELL TOO SOON
While having a strict discipline for dealing with losing stocks is important, you don’t want to be overly strict or too quick.
Freeman-Shor gives the example of Compass Group, the world’s largest food service company. It serves billions of meals a year. One of the investors that Freeman-Shor manages bought on November 20, 2007 at £3.19. He then stold the entire stake twelve months later at £3.04, for a loss of only 5%. At the time Freeman-Shor was writing the book, the stock had already increased 143% since it was sold, which was more than the overall market increased.
Freeman-Shor offers the example of BMW. One of his investors bought BMW on April 11, 2008 at £34.95. He sold two months later on June 23, 2008, at a price of £32.35 for a loss of 7%. The stock then went up 95%.
Another example: Perelli, the Italian tyre manufacturer. One of Freeman-Shor’s investors bought on January 22, 2010 at £4.61. He sold one month later at £4.26, a loss of 8%. Perilli subsequently increased 103% as of the time Freeman-Shor was writing the book.
And: Rightmove, where people in the UK look for a property to rent or buy. One of Freeman-Shor’s investors bought shares at £5.51 on November 13, 2009. A month later, on December 30, 2009, he sold at a price of £4.91, a loss of 11%. The shares then shot up 202%.
BE CAREFUL ON YOUR NEXT INVESTMENT
When a person sells a losing investment, they often become risk-seeking, which is called the break-even effect. This is not a good idea.
AN ELUSIVE CADRE
The Assassins were some of the most disciplined investors I have met, and a significant factor in their ability to make money was that they cut their losses consistently. A study by Professor Frazzini supports the Assassins’ approach too: it shows that the highest investment returns were achieved by those investors that had the highest rate of selling out of losing positions. Those that realised the least amount of losing positions experienced the lowest returns.
The losing trait of riding losing positions while taking profits on winning positions has been called the disposition effect by Frazzini.
The Hunters: Pursuing Losing Shares
Instead of using a stop-loss like the Assassins, the Hunters instead would—in certain situations—buy more of a stock that had decreased. Quite often, the Hunters would end up making a profit.
It’s important to note that the Hunters committed to buying more at lower prices—if they became available—before they even bought their initial stake. Freeman-Shor explains:
The key reason for the Hunters’ approach lay in their invariably contrarian style. They were value investors. They generally found themselves buying when everyone else was seling, and this was an extension of that philosophy, another way of exploiting Mr. Market when he was acting irrationally.
SUCCESS STARTS FROM FAILURE
Many successful Hunters had at least one terrible year near the beginning of their career. The Hunters learned how to be contrarian but also to be right more often than not. (Otherwise, there’s no benefit from being a contrarian.) Just as important, the Hunters learned to admit when they had made a mistake. Freeman-Shor:
They also grew unafraid to sell if it became clear they really had made a mistake. Poor value investors I have come across refuse to adapt when they are losing and tend to support their lack of action by saying, “I got it wrong but the stock is simply too cheap to sell now.” A bad contrarian investor can make for a very committed Rabbit.
But if a stock still passed the vital ‘Would I buy this knowing what I know now?’ test, the Hunters followed their plan, and started to put their money on the side to work as the share price dropped.
Many Hunters enjoyed the game of trying to pick a bottom in a given stock. It’s often not possible to do this, but sometimes it is possible to come close. As Freeman-Shor explains, successfully investing near the bottom can often create a nice profit. The Hunters enjoyed snatching victory from the jaws of defeat.
Be under no illusions: being a Hunter requires patience and discipline. You have to expect a share price to go against you in the near term and not panic when it does. You have to be prepared to make money from stocks that may never recapture the original price you paid for your first lost of shares. If you know your personality is one which demands instant gratification, this approach is not for you.
Freeman-Shor quote Peter Lynch:
I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.
Freeman-Shor offers some case studies.
Aker Solutions is a Norwegian oil services company. It provides products and services related to the construction, maintenance, and operation of oil and gas fields. One of Freeman-Shor’s Hunters bought the stock on April 14, 2008, at £15.84 per share. A year and a half later, the stock was much lower. The Hunter bought significantly more on September 28, 2009, so that his average cost was only £7.61. He sold at £9.58 because he realized his original thesis was no longer true. Had he not done anything, he would have had a loss of 40%. Instead, he made a 24% profit.
Experian is an Irish company that operates globally. The company collects information on individuals and produces credit scores used by lenders. A Hunter bought the stock on June 13, 2006, at an initial price of £9.02. After the price declined, the Hunter bought more, reducing his average cost to £5.66. When he sold at £7.06, he realized a profit of 19%. Had he done nothing, he would have lost 22%. Freeman-Shor notes that the Hunter, by his actions, had turned a losing position into a winning position.
Technip is a French company that does engineering and construction for the oil and gas industry. It’s a leader in areas such as subsea drilling, laying specially built pipelines, producing floating offshore platforms, and planning the development of oil and gas fields. A Hunter bought the stock on April 11, 2008, at a price of £55.42. When the stock declined, the Hunter bought much more, reducing his average cost to £42.24. He later sold at £52.13. He realized a gain of 22%. Once again, a Hunter had turned a loss into a gain by buying more shares on the decline.
Thomson Reuters is a global media company based on New York. It provides the latest content and data to the finance industry. It also produces material to help lawyers and accountants ensure they are up-to-date on the professional education. Moreover, the company produces research for the pharmaceutical industry. A Hunter bought stock on June 13, 2006, at £22.25. The stock dropped and the Hunter bought materially more, reducing his average cost to £15.82. He sold on September 10, 2009, at £18.92. Instead of a loss of 15%, the Hunter made a profit of 17%.
HUNTING FOR THE COMPOUNDING EFFECT
Freeman-Shor mentions the Kelly criterion. Freeman-Shor doesn’t mention the details, but they’re important, so here they are:
The Kelly criterion can be written as follows:
- F = p – [q/o]
- F = Kelly criterion fraction of current capital to bet
- o = Net odds, or dollars won per $1 bet if the bet wins (e.g., the bet may pay 5 to 1, meaning you win $5 per each $1 bet if the bet wins)
- p = probability of winning
- q = probability of losing = 1 – p
The Kelly criterion has a unique mathematical property: if you know the probability of winning and the net odds (payoff), then betting exactly the percentage determined by the Kelly criterion leads to the maximum long-term compounding of capital, assuming that you’re going to make a long series of bets. Betting any percentage that is not equal to that given by the Kelly criterion will inevitably lead to lower compound growth over a long period of time.
Both Warren Buffett and Charlie Munger are proponents of the essential logic of the Kelly criterion. Here’s Charlie Munger:
The wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don’t. It’s just that simple.
As for Buffett, he famously invested 40% of his hedge fund into American Express in the late 1960s. Buffett realized a large profit. Later, Buffett invested 25% of Berkshire Hathaway’s portfolio in Coca-Cola. Buffett again enjoyed a large profit of more than 10x (and counting).
Freeman-Shor notes the following:
If a stock you are invested in has fallen materially in price, but nothing else has changed—the investment thesis is still intact—your odds will have improved significantly and you should materially increase your stake in that company.
If you are a Hunter… you choose not to control risk by diversification but by thoroughly understanding the risk and returns of a particular stock or handful or stocks. Your goal is to find companies that have an unbelievably attractive, asymmetric payoff profile.
The fact that you are only investing in a few companies means that you have the opportunity to invest big on day one, and then follow up with large top-up investments should the share price fall.
Warren Buffett wrote in his 1993 letter to the shareholders of Berkshire Hathaway:
If you are a know-something investor, able to understand business economics and to find five to ten sensibly-priced companies that possess important long-term competitive advantages, conventional diversification make no sense for you. It is apt to simply hurt your results and increase your risk. I cannot understand why an investor of that sort elects to put money into a business that is his 20th favorite rather than simply adding that money to his top choices—the businesses he understands best and that present the least risk, along with the greatest profit potential.
Freeman-Shor concludes by pointing out that coaches would be quite helpful for investors:
I find it bizarre that top athletes and sportsmen and women have coaches but the majority of investment professionals do not.
How can they expect to improve their game if they do not have constructive feedback?
PART II. I’M WINNING—WHAT SHOULD I DO?
The Raiders: Snatching at Treasure
Raiders occupy a thin line between success and disaster. These are investors who like nothing better than taking a profit as soon as practical. They are the stock market equivalent of gold-age adventurers: having penetrated through the dense jungle, found the lost temple or buried treasure, they fill their pockts with all the ancient coins and gems they can—then turn tail and run.
Unlike gold-age adventurers, they are rarely chased by angry locals or rivals. The only boulders rolling after them are in their imaginations. They are terrified of getting caught and losing everything, and to ensure they at least come away with something end up leaving countless chests and swagbags of treasure behind completely unnecessarily.
I discovered the Raiders when I noticed the rather distressing fact that one of my investors had an incredible success rate—almost 70% of his ideas were correct, which is truly phenomenal—but he hadn’t made me any money.
I broke down the data for his investments and discovered that whenever he made a small gain, say 10%, he would immediately sell the stock and take the profit.
Interestingly, he was a hedge fund manager and in his own trading was an expert at shorting shares—and staying short. But when it came to long-only investments, he and the other Raiders lacked a key habit that the successful investors I worked with possessed. He did not embrace the right tail of the distribution curve. In ordinary terms, the Raiders did not run their winners.
Freeman-Shor then gives some examples.
Chicago Bridge & Iron is a multinational company that does energy industry infrastructure projects. One of the Raiders bought the stock on September 3, 2009, at £10.66. A month later, on October 5, 2009, he sold at £12.29. A few years later, the stock was at £30.38. The stock had increased 147% since the Raider had so prematurely sold it.
British American Tobacco manufactures and sells tobacco products, including the brands Lucky Strike, Pall Mall, Vogue, John Player, Benson & Hedges, and Kent. One of Freeman-Shor’s Raiders bought on July 3, 2009, at £19.96. Two and a half months later, on September 21, 2009, he sold at £21.75, a profit of 9%. A few years later, the stock was at £37.93, 74% higher than where the Raider had sold it.
Swedish Match is a world leader in chewable tobacco. The Raider bought on October 10, 2008, when the shares were at €10.56. This investor sold after two months on December 16, 2008, at €10.18, a 4% loss. He decided to buy back in on June 24, 2009, at €11.23, before selling on April 22, 2010, at €17.54, for a profit of 56%. A couple of years later, the stock was at €25.88, a further increase of 49%.
Novo Nordisk is a Danish pharmaceutical company and a world leader in diabetes medication (insulin) and care equipment (injection devices and needles). The company is also a leader in hemophilia care and hormone-replacement therapy. One of Freeman-Shor’s investors bought on April 22, 2009, at €35.71. He later sold on December 4, 2009, at €45.32, a profit of 27%. A couple of years later, the stock was at €124.92, a further increase of 175%. This Raider had made a huge error, assuming the intrinsic value of the stock was near €124.92 or higher.
Freeman-Shor summarizes by saying that Raiders are right most of the time, but still lose money because their losses are bigger than their gains. If they could learn to stick with winning ideas, they would be winning investors. Freeman-Shor comments:
…the most successful investors I worked with, those that made the most money, all had one thing in common: the presence of a couple of big winners in their portfolios. Any approach that does not embrace the possibility of winning big is doomed.
WHY DO INVESTORS SELL TOO SOON?
(1) It feels so good. Selling for a profit feels nice. We get a hit from testosterone and dopamine.
(2) I’m bored. As Peter Lynch observed:
[I]t’s normally harder to stick with a winning stock… than it is to believe in it after the price goes down.
(3) Frustration. It’s very difficult to patiently wait for years. One factor is hyperbolic discounting, which makes people prefer $1 today versus $2 tomorrow.
(4) Fear. Because of loss aversion, we tend to feel the pain of a loss at least twice as much as the pleasure of an equivalent gain. When a Raider’s investment starts doing well, he often fears what might happen if he doesn’t sell.
(5) Short-termism. There is recency bias. Freeman-Shor:
My own fund—the Old Mutual European Best Ideas fund—is a good example of this. If you took a three-year view from 2009 to 2011 you would have said I was a superstar. If you viewed my performance during August 2011, or for the year 2011 alone, you would have said quite the reverse.
The flows my fund experienced showed just this. Shortly after delivering those three-year performance figures I had over $200 million invested into my fund. But during August 2011, clients withdrew tens of millions of dollars.
Since 2011 the performance of the fund has been strong and, surprise surprise, we have attacted inflows again.
Imposing different time frames on an investment can produce very different results—and Raiders invariably impose short-term ones. This can be deadly for winning trades.
(6) Risk aversion. People are risk-averse when winning—and tend to take profits—and they are risk-seeking when losing. When winning, selling is appealing because the certainty of a small victory is better than the uncertainty of a loss or greater victory. When losing, risk is appealing because anything is better than a certain loss.
WHY YOU SHOULDN’T SELL EARLY
(1) Rarity value. Freeman-Shor:
All the successful investors I have managed made money because they won big in a few names, while ensuring the bad ideas did not materially hurt them.
… Stock market returns over time show kurtosis, which means fat tails are larger than would be expected from a normal distribution curve. This means that a few big winners and losers distort the overall market return—and an investor’s return. If you are not invested in those big winners your returns are drastically reduced.
(2) Beat your rivals. Honing your ability to let winners run can give you a very significant advantage as an investor.
(3) You cannot trust your next investment. The odds of picking a winning trade—based on the results of some of the best investors in the world working for Freeman-Shor—are roughly 49%. This means the odds of picking five winning investments in a row are roughly 2.8%. So if you have a winning investment, stick with it as long as possible.
(4) Winners can keep winning. The research says that a momentum strategy can be a winning strategy. A stock that has gone up over 6 months or a year often continues to go up. Of course, no stock goes up forever, so even though you should let a winner run—as long as the investment thesis is intact and the intrinsic value is higher than the current stock price—you should eventually sell unless it’s a company with a sustainably high return on equity (ROE).
(5) You can never predict big winners when you first invest. Freeman-Shor:
Many legendary investors did not predict their biggest winners—and have admitted it. Some all-time greats even built their investment style around not knowing how big a winner might be: Jesse Livermore became of of the wealthiest men in America in the 20th century by adopting a simple trend-following approach.
In effect he bought stocks that were being bid up and rode them up, never knowing if it would turn out to be a big winner when he initiated the position.
Some reasons why professional investors tend to sell too soon.
(1) Bonuses. Many fund managers are paid an annual bonus. (It would make much more sense to pay a bonus—and allow the bonus to be large—every five or ten years.)
(2) Expectations. Some fund managers feel the outperformance cannot continue. The error being made is that essentially no investor can predict their biggest winners ahead of time. So it’s best to stick with a winner as long as the investment thesis is intact and the estimated intrinsic value is high enough (or the company has a sustainably high ROE).
(3) Forecasting. Often when fund managers look one or two years ahead and use conservative assumptions, the estimated intrinsic value is not much higher than the current stock price. This makes it difficult to stick with the big winners.
(4) Relativity. Unfortunately, many fund managers are evaluated on a shorter-term basis. This makes them obsess over shorter-term results. However, the biggest winners often increase the most in year 3 or year 4 or later. A fund manager worried about 6-month or 1-year performance will tend to miss the biggest winners.
So being assessed on a relative basis leads fund managers to pay a lot of attention to how they are performing relative to both the benchmark index and their peer group. Worse still, some do this on a daily basis. They know the value of their holdings almost to the hour.
And it leads to a lot of unnecessary early selling. It helps professional investors think that stocks are riskier than they actually are. By monitoring a stock they are invested in several times a day, they notice the share price moves up and down quite a bit. The price seems volatile.
But what if you just reviewed an investment every ten years? You would probably find that the stock has made you quite a lot of money. Moreover, because you did not check the stock price during that ten-year period, you did not notice the price moving up and down every day. You never experienced the pain of a 20% fall in one day—perhaps 50% in a year. You were completely unaware of the volatility of the ride you were on. You therefore come to the conclusion that investing in the stock market is not risky at all.
My note: Fidelity did a study of its accounts and it found that the best-performing accounts belonged to people who either forgot they had an account or to people who had died.
The Connoisseurs: Enjoying Every Last Drop
The Connoisseurs are the last and most successful investment tribe I discovered among the top investors who worked for me. These are the investors whose performance lived up to the billing—or exceeded it. They did not get paralysed by unexpected losses or carried away with victories. They treated every investment like a vintage of wine: if it was off, they got rid of it immediately, but if it was good they knew it would only get better with age. They usually drank the odd bottle now and then, to tide them over—but otherwise they sat back and waited.
It takes a long of nerve to do nothing or merely trim a position when winning. Everything points to us being hard-wired to sell out of an investment when we have made a reasonable profit.
Taking small profits along the journey like a Connoisseur allows us to get instant gratification without ruining our long-term wealth aspirations. This ‘trick’ is one that I have seen in action and which allowed my best investors to stay in absolutely phenomenal winners.
HOW TO RIDE WINNERS
In terms of hit rate, as a group [Connoissers] actually had a worse record than the average for my investors. Six out of ten ideas the Connoisseurs invested in lost money. The trick was that when they won, they won big. They rode their winners far beyond most people’s comfort zone.
How to be like a Connoisseur:
(1) Find unsurprising companies.
The Connoisseurs’ approach was to identify companies with a view to holding them for ten or more years. They would buy businesses that they viewed as low ‘negative surprise’ companies. In other words, it was hard to envisage anything that could cause these companies to fail in generating profits over the years ahead.
Even if in the future they had terrible management at the helm, that management would have to be extraordinarily incompetent to destroy the profit-making ability of the enterprise. The companies were effectively money-printing machines.
The future growth of earnings was seen as very predictable, and because the Connoisseurs believed earnings growth drove stock prices, the stock price should therefore drift higher over time.
The main risk of buying these stocks was if they were rated highly at the outset (i.e. with high price/earnings ratio). This could mean that the company fundamentally performs as expected but the share price doesn’t follow earnings upwards due to it getting derated.
(2) Look for big upside potential. Where many investors go wrong is in investing in a lot of ideas with limited upside potential. Since your win rate may be between 40% and 49%, it’s essential to focus only on stocks with the biggest upside potential—or stocks trading at the greatest discount to intrinsic value.
(3) Invest big—and focused. Connoisseurs could end up with 50% of their portfolio in just two stocks. Freeman-Shor:
Having massive belief in a couple of names meant they were prepared to ride the stocks with big positions even when they were up 200% or more. Their success was testament to Stanley Druckenmiller’s comment that “position size can be more important than entry price.”
This is one of the reasons that I allow each of my current investors to invest up to 25% of the money I give them in a single idea.
Freeman-Shor quotes New Market Wizards:
When you have tremendous conviction on a trade, you have to go for the jugular. It takes courage to be a pig. It takes courage to ride a profit with huge leverage. As far as Soros is concerned, when you’re right on something, you can’t own enough.
It is no use having a small investment in a big winner; you have to have a large position size to generate big returns.
(4) Don’t be scared. One key to sticking with a big winner and not being attracted by another great investment is to take small profits as the potential big winner is going up. But the bulk of the potential big winner should be maintained and not sold.
(5) Make sure you have a pillow. Freeman-Shor writes about having a high boredom threshold:
Meeting some of my Connoisseurs could be very, very boring because nothing ever changed. They would talk about the same stocks they had been invested in for the past five years or longer…
The fact is, most of us will find it difficult to emulate the Connoisseurs because we feel the need to do something when we get to the office (or home trading desk) every day. We look at stock price charts, listen to the latest market news on Bloomberg TV, and fool ourselves into believing we could add value from making a few small trades here and there. It is very hard to do nothing but focus on the same handful of companies every year, only researching new ideas on the side.
Many of us, seeing we have made a profit of 40% in one of our stocks, start actively looking for another company to invest the money into—instead of leaving it invested. This is precisely why lots of investors never become very successful.
Freeman-Shor next gives some real-life examples.
Shoprite Holdings is the largest food retailer in Africa. It also operates furniture outlets, fast food outlets, and pharmacies. It is the Wal-Mart of Africa. One of the Connoisseurs invested in Shoprite on May 20, 2009, at £3.96 per share. He sold the position three years later on August 9, 2012, at £13.10 per share. This was a return of 231% in only three years. This investor trimmed along the way and realized an overall profit of 104%.
Spirax-Sarco Engineering is a UK company that builds and maintains steam and industrial fluid plants. The company’s products—which include boilder and pipeline control valves and clean steam generators—are being used more and more. One of the Connoisseurs had known about this company for decades. He bought a position on November 30, 2007, at £9.63. He sold five years later on October 22, 2012, at £19.70. The Connoisseur trimmed along the way and so realized a profit of 70% by selling at an average price of £16.40.
Rotork is a UK-based business and the world’s leading manufacturer of valve actuators, whether electric, pneumatic, or hydraulic. The Connoisseur had known about the company for a long time. He bought a position on November 30, 2007, at £9.84. He sold five years later at £25.18. Because the investor took profits along the way, he realized an average selling price of £17.26, banking a profit of 74%.
President Chain Stores is a Taiwanese company. The company is an international food conglomerate operating in Taiwan and China. It’s similar to Wal-Mart. One of the Connoisseurs established a position on June 15, 2006, at £1.37 per share. He sold five years later on August 23, 2011, with the shares at £3.73. Because he trimmed along the way, the investor realized an average selling price of £3.17. This was a profit of 132%.
Kasikornbank is a commercial bank in Thailand. Through its wholly-owned subsidiaries, it does everything from investment banking to securities brokerage, fund management, hire purchase, and machinery/equipment leasing. A Connoiser initiated a position on June 20, 2008, at £1.09. He sold two years later on November 1, 2010, when the shares were at £2.65. Because the investor sold along the way, his average selling price was £1.88. Thus, he realized a profit of 79%.
Freeman-Shor writes an important point:
Remember, despite their successful approach, only one-in-three of the Connoisseurs’ ideas made money. In other words, every Connoisseur was also an Assassin or a Hunter when it came to losses.
CLUES FROM THE FORBES RICH LIST
Most people on the Forbes rich list not only have created a wonderful business, but also have never sold out. Many of these folks received buyout offers along the way, but they decided not to sell. Freeman-Shor:
Over the past decade or so, I would imagine Bezos has been approached by hundreds, possibly thousands of other companies wanting to buy Amazon from him. Could you have resisted if someone offered you $10m or $100m for your company? Resisting temptation and staying invested in a great idea is critical. Had Jeff sold out earlier when he was building Amazon, we may never have heard about him today.
When you are winning, dedication and discipline is what you require. The Pareto principle, otherwise known as the 80/20 rule, states that 80% of the effects come from 20% of the causes. It helps explain why great investors can be wrong most of the time and still make money. A few big winners make a massive difference to the eventual outcome.
WHY MANY FUND MANAGERS ARE DOOMED TO FAIL
Freeman-Shor writes that many fund managers find it nearly impossible to be Connoisseurs.
Firstly, many professional investors over-diversify when they invest because they are managing career risk. Most are judged by their bosses and employers based on how they perform against an index or peer group over a short period of time. This militates against concentrating investments in potential long-term winners.
Secondly, regulators—based on investment theories from the 1970s—have put into place rules that prohibit professional fund managers from holding large positions in just a handful of their very best money-making ideas.
Because they believed diversified portfolios represent less risk than a concentrated portfolio of stocks. The reality, however, is that all you are doing is swapping one type of risk for another. You are exchanging company specific risk (idiosyncratic risk), which may be very low depending on the type of company you invest in, for market risk (systematic risk).
Risk hasn’t been reduced, it has been transferred.
The legendary investor Warren Buffett has written that if you know the companies you’re investing in very well and if you’ve focused only on your very best ideas, risk is actually lower than if you added more ideas about which you had both less conviction and less knowledge.
ACADEMIC SUPPORT FOR ‘BEST IDEAS’ INVESTING
There was a paper that looked at the performance of investment managers’ best ideas. They found:
- The single highest-conviction stock of every manager taken together outperformed the market, as well as the other stocks in those managers’ portfolios, by approximately 1-4% a quarter. That is a staggering 4-16% a year. Over a ten-year time frame, that means these stocks could have outperformed the market by a phenomenal 48-341%!
- The managers’ top five stocks also outperformed the market, as well as the other stocks in those managers’ portfolios, significantly.
- The managers’ worst ideas—those stocks with the lowest weighting—performed significantly worse than the managers’ best ideas.
The study also found that there was little overlap in terms of the specific best ideas of the investors they studied. The bottom line: Success comes from investing in your best idea.
The authors of the paper conclude:
What if each mutual fund manager had only to pick a few stocks, their best ideas? Could they outperform under those circumstances? We document strong evidence that they could, as the best ideas of the active managers generate up to an order of magnitude more alpha than their portfolio as a whole.
The paper also notes:
The poor overall performance of mutual fund managers in the past is not due to a lack of stock-picking ability, but rather to institutional factors that encourage them to over diversify, i.e. pick more stocks than their best alpha-generating ideas.
…the organization of the money management industry appears to make it optimal for managers to introduce stocks into their portfolios that are not outperformers… [in other words] managers attempt to maximise profits by maximizing assets under management… while investors benefit from concentration… managers under most commonly-used fee structures are better off with a more diversified portfolio.
DANGERS OF BEING A CONNOISSEUR
Freeman-Shor notes that while being a Connoisseur generates the highest returns, it is not easy and there are dangers, three in particular:
(1) You can be too late. After a stock has increased a greal deal, at some point it won’t and the investor may be too late. I would add: As long as the intrinsic value is higher than the current stock price, or as long as the ROE is sustainably high (if you’re buying a higher quality business as your value investment strategy) and the stock price reasonable, then you should be OK.
(2) Momentum can be illusory—and end abruptly. See the previous point.
One must also beware of bubbles. Freeman-Shor mentions the book by Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1841).
His research showed how people lose the ability to think rationally under pressures of crowd behavior. At the height of a bull market or in the depths of a bear market people become herd-minded.
This suggests that sipping some of those profits over time makes a lot of sense. While you stay invested and therefore have the potential to win big, you are mitigating the potential damage should the shares disappoint.
(3) You can get stuck. If panic takes over, it can be difficult to sell.
CONCLUSION: THE HABITS OF SUCCESS
Having had the privilege of investing over a billion dollars with the best investors in the world, and managing them on a daily basis for over eight years, my preconceptions about successful investors have been shattered.
I discovered that the success enjoyed by top investors is not due to possessing a special gift, nor from having a privileged upbringing (though some who worked for me did). Nor is it down to being born geniuses, though many were very smart. Instead, any success ultimately came down to just one thing: execution.
This was the common thread that connected all of them. And the secrets of successful execution were really just a matter of habit.
Each had learned the unseen art of executing ideas in a way that meant that even if they were wrong most of the time, they would still make a lot of money.
These successful investors didn’t have any clairvoyant forecasting abilities, but they knew what to do when they were winning or losing. Freeman-Shor:
If they were losing they knew they had to materially adapt, like a poker player being dealt a poor hand. A losing position was feedback from the market showing them that they were wrong to invest when they did. They knew that doing nothing, or a little, was futile. They had each independently developed a habit of significantly reducing or materially buying more shares when they were losing.
When winning, to take an analogy from baseball, the successful investors knew they had to try to hit a home run, as opposed to stealing first base. This meant that they had developed the hidden habit of being resolved to stay invested in a winning position even when inside they were burning to take the profits they had made, and their inner voice was screaming, ‘Take the profit before you lose it!’
Freeman-Shor adds the following:
Success in investing is open to anyone, whatever their level of education or background, whether old or young, experienced or inexperienced. You simply need to materially adapt when losing and remain faithful when winning.
If you have the discipline to do that, you can succeed.
I have no doubt that many professional investors reading this will neither change the way they invest nor adopt the winning habits I have revealed. They will consider them too simple or common. Most think they are just too smart and that they know best. They are overconfident in the same way all drivers think they are better than average. It’s their loss.
Freeman-Shor makes an additional, important point:
Some people may worry that adopting the habits of the successful investing tribes means losing their identity—or looking to invest with ideas that aren’t really theirs. The good news is that the investors within each group all had radically different opinions about almost everything. Their habits of execution overlapped, but the ideas that got them into an investment in the first place could not have been more different.
THE WINNER’S CHECKLIST: THE FIVE WINNING HABITS OF INVESTMENT TITANS
(1) BEST IDEAS ONLY. You should only invest in your very best ideas. Period. One or two big winners is essential for success.
(2) POSITION SIZE MATTERS. Again, it’s essential not to over-diversify. Invest only in your very best ideas. But have a handful of these ideas, not just one, because sometimes there are unforseen events or bad luck.
(3) BE GREEDY WHEN WINNING. You have to let your winners run. Embrace the possibility of the big win. Embrace the right tail, the statistical long shots, of the distribution curve. Give your investments the possibility of growing into ‘ten baggers.’
(4) MATERIALLY ADAPT WHEN YOU ARE LOSING. Either add significantly to a losing position or sell out. If you add more, you can turn a loser into a winner.
(5) ONLY INVEST IN LIQUID STOCKS. How liquid a stock is depends in part on how much you’re investing. If you’re investing $10 million or less, then most of the best investments will be microcap stocks.
THE LOSER’S CHECKLIST: THE FIVE LOSING HABITS OF MOST INVESTORS
(1) INVEST IN LOTS OF IDEAS. As noted earlier, Warren Buffett has pointed out that you should concentrate on your best ideas and that adding more ideas than that would only increase risk and decrease returns. Or as Charlie Munger said:
Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.
(2) INVEST A SMALL AMOUNT IN EACH IDEA. This is related to the previous point. If you do not invest big in your best ideas, you won’t be able to do very well because a few big winners are what make the difference between an extraordinary track record and a mediocre one.
(3) TAKE SMALL PROFITS. If you sell too much of your best ideas before giving them a chance to really run, you are cutting off your best chance for excellent overall results.
(4) STAY IN AN INVESTMENT IDEA AND REFUSE TO ADAPT WHEN LOSING
(5) DO NOT CONSIDER LIQUIDITY
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time.
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.