I recently read An Astronaut’s Guide to Life on Earth, by Col. Chris Hadfield. If you haven’t read it yet, I highly recommend it. It’s one of those books that anyone could read and apply the story to their own life. The book is an insightful story of Chris’ journey to becoming an astronaut, and his experiences while being one. It truly is amazing how much time, strength, and diligence went into his own work. He loves his job, but even more than loving the job itself, he loves the process of preparing for his job. We can all learn from this book and apply it to our every day life, but also of course, as investors. Below are a handful of great quotes I pulled from the reading:
“To me, the only good reason to take a risk is that there’s a decent possibility of reward that outweighs the hazard…I accept the risks of being an astronaut, but with an abundance of auction: I want to understand them, manage them and reduce them as much as possible.”
This is as close to the definition of making an investment as it gets. We are seeking asymmetric bets, where the possibility of reward far outweighs the risks. We need to understand our investment decisions, the risks behind them and try to manage them.
“As I have discovered again and again, things are never as bad (or as good) as they seem at the time.”
This is something we all see every day, in the news. It’s one of the reasons our emotions gyrate from highs to lows. The media, as we know, often blows things out of proportion. When listening to the media covering the markets, they are all stretching for good stories, covering companies’ recent earnings, quoting prices continuously. My approach is to stop listening to limit your reading to a few good sources and to maintain an open mind to anything you’re reading. Like Chris says, things are never as bad (or good) as they seem at the time.
“As we work through huge checklists…I go through my checklist”
Checklists are something investors often use, whether it’s a physical checklist or something they go through, somewhat like a mental model they apply when looking at a company. It keeps you from missing a fatal flaw in a company or your investment thesis. All investors, make mistakes despite using checklists, but what matters is that you mitigate your mistakes. You will likely make less mistakes using this approach.
“But I did get in touch with the fact that I didn’t even know what I didn’t know.”
Our not knowing is one of the most dangerous things there is to us, but it can also be used to our benefit. How do we deal with our not knowing? I have two answers.
- Read, learn and ask questions.
- Know your circle of competence. Think about what you do know and stick to that. For those areas of space that you do not know about and don’t understand, simply steer clear. It’s OKAY to admit your own limits.
“We’re trained to look at the dark side and to imagine the worst things that could possibly happen. In fact, in simulators, one of the most common questions we learn to ask ourselves ins, “Okay, What’s the next thing that will kill me?””
Investors need to think more like this.
“The moral of the story: part of preparing for the worst is keeping in mind that your sim itself may be based on the wrong assumptions, in which case you’ll draw the wrong, perfectly polished conclusions.”
This quote from the book reminds me of John Maynard Keynes’ saying, “It is better to be roughly right than precisely wrong.” We need to remember that our investment thesis may be based on the wrong assumptions. Our beliefs on a company’s competitive advantage, resistance to an economic downturn, their brand power, etc. may not be as good as we believe because of factors we have not considered. Our entire thesis could come crumbling down due to our wrong conclusions drawn from the wrong assumptions. Chris Hadfield here again has shed some wisdom for us that is important to keep in mind. If we do find our conclusions to be wrong, I believe it is very important to change our minds and to let go of our prior beliefs! Being too attached to idea or a company can be detrimental to success.
“Be ready. Work hard. Enjoy it!”