In my investor journey, one of the bad habit that I frequently do is to look at my watchlist, focus on some stocks that I might want to buy, and say, “If only I have bought X at X price, I would have made X amount of money.” Or sometimes I would say, “If only I have bought this share at this point, and sell at this point, I should have made this X amount of money.”

Isn’t it ridiculous how our mind is tricking us? That is why, one of the most important thing to develop in investment, if not the most important, is emotional maturity toward the market and self. I find that this is the hardest lesson to learn and internalize. To make it clearer, there are two types of lesson in investing (this is true in a lot of other fields as well). The first lesson is the lesson that you can learn directly by reading or following instruction. Most of the lessons of this type can be put into system and if followed consistently will lead to success. In music, the major/minor theory might be an example. In investing, some of the examples are valuation techniques, best practices in fund management, and idea selection.

However, the second type of lesson is the body of knowledge that you cannot put into system, maybe because it is too huge or because of its randomness nature. These are the things that cannot learn in a few weeks time. On the first type of lesson, focused learning might help you master it, but in the second type, it will take years and experiments to help you master it. In music, playing technique is one of the lesson that takes lifelong to master. You cannot expect to pick up a technique book and master it in few days. In fact, an experienced musician will tell you that music is a lifelong journey. In investing, the examples are emotional maturity and qualitative judgment on a business.

Emotional Maturity
Those who expect to be able to master the market after reading few books will do well to heed this. There is other side of coin for investing. It is not just about mastering the market, it is also about mastering ourselves. Being able to master self is a much harder task than being able to master the market. Unfortunately, although we can learn about the theory of investing psychology, putting it into practice is another matter. It is sometimes comforting and entertaining when we read about behavioral finance (Montier or Kahneman), and laugh at all the example given, because we are taking the point of view of an observer. However, little do we realize how vulnerable we are to the same issues that are being taught in the book.

The truth is, when the rubber hits the road, it takes years of mistakes and market cycles to reach emotional maturity. It is not something that you can pick up in 6 months, 1 years or even 5 years. Based on my interview of some investors, it takes at least 15 years of learning to do it. Unfortunately, in my case, my first 5 years doesn’t count, because I am not learning in a focused manner. So don’t expect a shortcut.

Qualitative Judgment
Another important part of investing is to be able to judge the matter such as whether the company is good, whether it can grow in the future, whether the management/governance has integrity, or whether the financial is cooked. An investor, similar to a businessman, decides based on a set of tools. This set of tools is ingrained in his brain to help him make judgment. The problem is, every investor starts with an empty toolbox. As time goes by, more and more tools are added into the arsenal. This might be what Charlie Munger refers as “Latticework” of “Mental models.”

In investing, it is true also in many other fields, one cannot only rely on one tool. Munger says that if you give a hammer to a person, then everything looks like a nail. However, if you add screwdriver to your toolbox, then when you see screw, you will use your screwdriver instead of your hammer. Unfortunately, for some (myself not excluded), there will be many screws hammered before they are aware of the existence of a screwdriver. In some cases, the building will barely holds (investment that barely lose money), in some cases, the whole building will collapse (investing that lose a lot of money). Of course, one can say that you can start buying a complete set of toolbox, something like doing a bootcamp in investment. Yes, that opportunity does exist. I would cherish the opportunity to work under Marks, Buffett, or Klarman. Unfortunately, for most of the investors out there, that chance is quiet slim. For majority of people, it will take a long time to make that toolbox usable in most investment cases.

I want to share two lessons to close this post. I hope it can be a very practical lesson for all of you.

1. You cannot buy at the lowest, and sell at the highest
This is one of the worst habit that an investor can have. As an investor, I frequently daydream and say, “If I have bought at X and sell at Y, I would be making Z amount of money.” Well, sometimes an investor job get boring, especially when the market is expensive and there are nothing interesting to be bought. It is tempting to have a self-pity therapy and look back on the chart and have self-regret for not making some of the decisions. Self-pity is toxic. The truth is, it is impossible to time the market consistently. There is only one point that is called the lowest, and there is only one point that is called the highest. The probability of hitting both is quite small. The probability of hitting both consistently is even smaller. So, stick to the plan, and be content. Don’t dwell yourself in the self-pity exercise. If you are bored, here is one advice for you, write a blog. 🙂

2. Count your blessings, more importantly count your curses not inflicted.
Out of the many questions I get asking about investing, I have yet found a person who ask me question on risk management. Instead of “How do you avoid investment mistake?”, “How do you manage your risk?”, “What to do when you are wrong?” I will get these type of question all the time, “how do you find a good stock?”, “how do you calculate the growth of the company?”, “what is the next hot stock that will go up?”.

Little do people realize that it doesn’t matter that you make a huge amount of money if you lose all of it the next week. In learning other investors, I learn that risk management is extremely crucial. That is because in investing, the first goal is capital preservation, not capital appreciation. You need to survive first, grow second. I heard once a person says, “There are OLD investors and there are BOLD investors. I still have yet met an OLD BOLD investors.” The problem is, in most books that we read about investing, most of the case studies will involve what went well. It will give the reason why certain ideas work. It will rarely give an example of why a certain company is passed or fails investment criteria. This is because in a year, a prudent investor passes on most investment ideas. In my experience, I probably say no to 90-95% of the companies that I see.

Let’s just look at Indonesia stock market. There are around 500 companies in the market. How many of them are good companies? Probably around 70. How many of them has attractive valuation? Maybe less that 20 (Some might argue otherwise). I hold 80% of my portfolio in 5 companies. Why 5 companies? Because I cannot find more of them. This year alone, I have said no to probably tonnes of companies. To end, I will list some of my curse below. These are the companies that comes into my screening, and I say no. In the process, I am able to avoid losses in my portfolio.

GAMA
HRUM
ITMG
ELSA
BAJA
INVS
BUMI
MBTO
ADES
CEKA
MITI
MAIN
MICE