Some More Things we are admiring about Investing.......

1. Conviction Builds with Time

Conviction on a position in one’s portfolio is key to long-term returns. Lack of conviction will either lead to small & immaterial sized position or big mistakes. Great results are an outcome of right level of conviction followed by an action to take the material position.

There is no shortcut or history that can help build conviction faster. A business needs to be followed for a sufficient time to get the necessary insights.

We try to do it in a couple of ways -either by initiating a starting position and continuing learning as an owner, or tracking some good businesses on watchlist and buying them only when sufficient conviction has been gained to take a big position.

2. Best Insights sometimes can come from current holdings and their natural extension

Insights cannot be forced. They come naturally over time tracking and learning a specific business over a long period of time. Sometimes , the businesses one owns in portfolio can lead to insights into a new idea including one of its business segments or its suppliers or competitors.

The insight can be acted upon when the odds align favorably. We have been able to do it a couple of times.

Spend a lot of your reading time to know your portfolio companies better. This could not only expand your learning of your current holdings but also provide you with an insight into a new opportunity.

3. Small size of lab ideas are helpful

As I wrote in the 2023 Annual Report, building a laboratory of ideas is one of the ways we like to extend circle of competence. Position sizing is unimportant, and the aim is not to make big returns, but either generate further conviction (to top up to a core position) or exit and utilize cash for the other bigger ideas.

4. The position sizing will evolve naturally over time and must not be forced 

In my initial days, we have scratched my head too often to figure out the sizing of the positions. Now, we like the natural process of building up position slowly slowly over time in line with the natural portfolio exits (closer to intrinsic value) or available cash, or in very rare severe scenarios- from replacing one cheap holding with a materially cheaper holding.  While we don't like following the last route, but sometimes such hard decisions are key to becoming a better investor. 

5. Barbell Strategy 

As coined by Nassim Taleb in Antifragile, my most favorite book, barbell strategy has so many practical applications and more so in the investment portfolios.

For us, it is simply to avoid the middle - Mediocre companies at mediocre valuations. 

The two ends of our investible barbells are- Exceptional companies at good prices or extremely cheap, no brainer companies. 

6. Once in a while, you will feel the stars are aligned to make a huge bet on conviction and it must not be given away

One will make mistakes too, but there will only be a few such opportunities where you will make big. Believe (especially in the early years) to error on the side of ambition than extreme caution. 

You can be a few times wrong, and the one time right could make all the difference. 

So, do the work, build conviction, don’t be shy or fearful, act on it and have courage to live with the results. 

Akhil D.