It’s time to take a break again

Around 2 years ago I realised that my thinking was getting clouded; so I decided to take a month-long break from investing – no public markets, no HotCopper, no AFR. I read back on that original post just now and this paragraph is eerily similar to how I’m currently feeling:

“One thing that’s clouded my thinking is checking my portfolio several times a day.  I’m lucky if any stock posts news in a single week, let alone by the hour. It’s become a distracting habit that is a net negative on my ability to make decisions on a time horizon which tends to be 1 year plus.”

The investments I’ve made in the last 1-2 years have paid off big-time:

  • Dominoes and Dicker: up 100%
  • Kogan up 500%
  • Fortescue up 300%
  • Reece: up 50%

It’s human nature to look at these big share gains and want to take profits (I did sell half of my Kogan shares at $21.69). We’re 2 months into the new financial year and I’m already up 20%. In fact, since inception 3 years ago, my portfolio return has totalled 185% compared to the VAS index of 22.8%. Why not just move it all into Vanguard and put my feet up?

That’s a rhetorical question – I enjoy the game, as long as I can keep beating the markets. It’s intellectually stimulating and the strategy I use means that I get to spend most of my time as an investor sitting on my ass, to paraphrase Charlie Munger.

However, I happen to be a big believer in the ability of each management team to allocate capital very effectively. So if I am to sell down my current portfolio, where else do I allocate my capital? Do I find a better-priced company who can’t generate returns as effectively? To me, that sacrifices the long-term value creation you achieve with truly great leadership.

I have been looking for more value opportunities at both ends of the spectrum. Working in the tech industry I have a decent understanding of Annual Run Rate (ARR) businesses and there are some promising minnows in the ASX technology index (one of whom I was looking at, BTH, announced results and has promptly gone from 90c to $1.20 before I got the chance to research it properly. Seeing that happen over the course of a few days really messes with your head.)

At the other end of the spectrum, there are some interesting ASX50 companies which seem reasonably cheap, but carry the baggage you get with most big companies: Complicated business models, career managers (instead of owner-managers), regulated industries, modest growth, and internal bureaucracy. AGL looks cheap until you see $300M of NPAT is about to be erased due to declining wholesale gas and electricity margins.

I’ve come to realise that in my current psychological state, I’m much more likely to make investing mistakes, which leads to losing money, so I’m going to take a reset for now and turn my attention to activities not related to investing for the month of September.

Reflecting on FY19 when I last took a break, I lagged the index in the first quarter but still managed to beat it in the full year by 225 basis points. Perhaps past performance can again be an indicator of future performance.

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