Wednesday, June 06, 2018

Tangible Thoughts #5: Howard Marks

"The key word is calibrate." - Howard Marks

Investing is not black and white, in or out, risky or safe. The key word is calibrate. The amount that you have invested. Your allocation of capital among the various possibilities. The riskiness of the things you own. All these should be calibrated along a continuum that runs from aggressive to defensive.

Howard Marks

Coming from guru Howard Marks, the words and meanings just come alive much better. Investing is never binary. There are always lingering questions and there is always another answer, a better answer. Futures and outcomes are always a set of probabilities, how do we pick stocks with the lower probability of loss, how do we size our bets, how do we time our exits, these are the important details. 

Some quick rule of thumbs I have established over the years:

1. Size your initial bet small, so that you can scale up over time. This works for me because usually I am too early.

2. Don't bet more than 10% on any single bet unless you are really super sure.

3. If you are wrong, it is much better to find another opportunity with similar or more upside and switch to the new name.

4. If an investment worked out, like it is up 100-200%, then good to trim some and deploy the capital to other names.

5. Diversify across at least 20 names in different sectors if your capital allows.

Hope this helps! 

PS: 6th of June is also known as D-Day, the longest day in history. 73 years ago, on Tuesday, 6.6.1944, allied forces reached Normandy beaches of France and launched Operation Overload against the Nazis. Their victory marked the turn of the tide which led to the end of the WWII. Thousands died on that day. Tribute to all who had given their lives to preserve peace in our world.