Welcome to yet another recurring theme type of posts! Modeled after Xi Jin Ping penning down his thoughts for the Middle Kingdom after Mao and Deng, this series will pen down bite size thoughts from the great investors as well as other thought leaders.
Here's the first inauguration thought from David Einhorn taken from an excerpt of a talk he gave recently. He was asked this interesting question from the audience and his answer was just enlightening.
Audience: Do you sort of stick to your guns, when it comes to entering contrarian positions and holding it until it works out?
David: First of all, it's not about sticking to your guns. It's about reassessing constantly. And when the positions don't work, or they go against you, the presumption is not we were right, the presumption is that we might have missed something here. And so then, you have to go back and think about it again and again and again and understand the other side, and see if anything has changed, and see if your view has changed, if it has changed, to modify the position. And you might eliminate it, or you might reduce it, or sometimes increase it, but very rarely.
Generally speaking, my inclination is when the position is not going well it's more likely that we missed something, so the choice is generally either to reduce or eliminate or just simply keep it if we think that it's right. On the other hand if we continue to think that we are right, then I find that patience is the way to go. And then we have to wait and let the story play out however it does, while we continue to reassess it to see if, in fact, we were wrong.
Investing is not about right or wrong with one's initial stance as every new development changes the course. Rather, it is about reassessing the situation constantly, changing our positions when things change or have the patience to wait for the market to realize our correct views.