I recently attended a small retreat for fund managers where one of the guest speakers, via video presentation from a game reserve in S. Africa, was a lion tracker. He shared some point about tracking lions that had significant overlap with investing. I thought I'd share a few notes I jotted down ...
Intuition drives the first step
"Trackers sit in the tension of the unknown"
"Trackers are energized buy the state of the unknown"
Walking over the same areas multiple times offers opportunities to see new things more clearly
Trackers develop narratives based on information but they need to be open to new information and open to re-calibrating those narratives.
"We take in the macro (sounds, wind direction, weather) and integrate it into the micro."
When trackers lose a trail, they stop. Then reassess.
... there were many more nuggets of information, and the guy was pretty inspiring, but I wondered how much more effective a tracker is vs simply hanging out at a watering hole and waiting. I suppose that would be the index investing analog to tracking a lion: Less fun, less interesting and though unlikely to have as high a success rate, zero effort utilized. Of course, if hanging out at the watering hole is just as good as the tracker, then maybe the tracker isn't so good?
Our portfolio is having a pretty good YTD - here is a link to my 3Q22 letter - but whatever success I'm having rests heavily on lessons learned from 2020, which was a very hard year for me and our portfolio. It took me a long time to internalize the experience of significant losses and learn from it. I wrote about some of these lessons in my 3Q20 letter and these lessons very much inform my work as a portfolio manager today. I can summarize those lessons in three words: "IRR is everything."
I started my business with significant experience as an analyst and zero experience as PM. I knew there was a lot to learn and seven years in, I've learned a few things beyond just the importance of IRR. It includes the importance of changing ones mind, limiting large losses, starting with smaller sized investments and growing them over time, buying on the way up or down, all in the effort to upgrade the lowest expected IRR company in the portfolio with companies with higher IRR's. Though I aspire to own stocks forever, the realities of managing a portfolio of SMA's is very different and occasionally prohibitive of that endeavor.
I realize what I do is idiosyncratic and not for everyone. I'm still not earning what I would make if I were an employee, but it's all moving in the right direction, slowly and steadily. I love engaging my curiosity about the world through the lens investing and I believe I'm building something thoughtfully and step-by-step that I can do for decades longer. If I keep my head down and show consistency in finding companies that grow in value, the business will grow in value too, and create something of substance for me and my clients.
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