It is undeniable that Buffett is recognized by most people on Wall Street, especially in terms of value investing, and only investing in individual stocks, not holding a large number of stocks at the same time (holding too many stocks will feel like investing in an index fund such as the S&P 500)
The analysis of Ackman's concentrated portfolio approach is particularly insightful. I've been following a similar strategy with 10-15 positions, and the emphasis on thorough research really resonates.
However, I'm curious about how you handle the psychological pressure of concentrated positions during market downturns. The article mentions Ackman's performance during different periods - how do you think individual investors can better manage the emotional aspects of this strategy?
On one hand, you dont want to be stubborn and hold on to your loser regardless of what is happening to it fundamentally. And on the other hand, you dont want to panic and sell a stock just because it drops in price.
I think the skill to develop is how you evaluate a business’ performance, future outlook and valuation.
One example I love is Meta in 2022, when the stock fell sigificantly. It was still a great business, it was growing, very profitable, unique business model and at one point it was trading below 10x earnings. Many investors sold during this sell off due to stgnating FB numbers, poor capital allocation (buy backs at ath levels), and high Capex due to investment in becoming more GDPR complient and data protective.
What was going on was that a high growing business showed some short term weakness to become stronger in the long term. Had investors looked at the fundamentals and how important Meta was in the digital ads space, they would not have sold at 10x earnings. But the pain of losing money, the negative narratives, and the daily news cycle can be too much for investors to stay with their conviction.
This is very human, we want to avoid pain. And would rather sell to avoid losing sleep over investments.
I believe the trick is to understand the business on a deep level. By that i mean that you have been following the business over a long time, you know what drives value, you understand the strategic investments made, and you take a long term view on the holding in general. You know what you believe the business is worth, you know when it is cheap and when it is expensive. You understand the competitive dynamics in the market, and why your business has a strong moat, you also understand what might challenge that moat over time.
In this scenario it becomes much easier to hold on to the stock, despite poor stock performance. You know what it is worth, and you will not sell it at 50% of what its worth.
A test iI usually do when Im in this situation is to ask myself «Would I be a buyer of this stock at this price if it wasnt already a holding?». If the answer is yes, I hold. If the answer is no (due to deterioration of the moat and/or fundamentals), I sell.
So the best protection against making rash decisions when there is volatility in the market is to know the businesses you own on a deep level and the valuation you believe is fair. If you only look at the stock price movement, you will go insane. I usually dont look at the market moves on a daily basis because it is just noise.
I have written multiple articles on this subject, I find it very interesting.
Thanks for the great breakdown of Ackman’s strategy — clear, focused, and full of useful takeaways. I especially appreciated your point on conviction and patience. It’s a solid reminder that deep research and long-term thinking often outperform constant trading. Looking forward to more posts like this!
I forgot where I saw a similar investment method. It seems to be an article about Buffett's investment philosophy, which is very similar to it
Yes, Bill is highly influenced by Buffett.
It is undeniable that Buffett is recognized by most people on Wall Street, especially in terms of value investing, and only investing in individual stocks, not holding a large number of stocks at the same time (holding too many stocks will feel like investing in an index fund such as the S&P 500)
The analysis of Ackman's concentrated portfolio approach is particularly insightful. I've been following a similar strategy with 10-15 positions, and the emphasis on thorough research really resonates.
However, I'm curious about how you handle the psychological pressure of concentrated positions during market downturns. The article mentions Ackman's performance during different periods - how do you think individual investors can better manage the emotional aspects of this strategy?
Great question, Laverne.
I think there are multiple layers here.
On one hand, you dont want to be stubborn and hold on to your loser regardless of what is happening to it fundamentally. And on the other hand, you dont want to panic and sell a stock just because it drops in price.
I think the skill to develop is how you evaluate a business’ performance, future outlook and valuation.
One example I love is Meta in 2022, when the stock fell sigificantly. It was still a great business, it was growing, very profitable, unique business model and at one point it was trading below 10x earnings. Many investors sold during this sell off due to stgnating FB numbers, poor capital allocation (buy backs at ath levels), and high Capex due to investment in becoming more GDPR complient and data protective.
What was going on was that a high growing business showed some short term weakness to become stronger in the long term. Had investors looked at the fundamentals and how important Meta was in the digital ads space, they would not have sold at 10x earnings. But the pain of losing money, the negative narratives, and the daily news cycle can be too much for investors to stay with their conviction.
This is very human, we want to avoid pain. And would rather sell to avoid losing sleep over investments.
I believe the trick is to understand the business on a deep level. By that i mean that you have been following the business over a long time, you know what drives value, you understand the strategic investments made, and you take a long term view on the holding in general. You know what you believe the business is worth, you know when it is cheap and when it is expensive. You understand the competitive dynamics in the market, and why your business has a strong moat, you also understand what might challenge that moat over time.
In this scenario it becomes much easier to hold on to the stock, despite poor stock performance. You know what it is worth, and you will not sell it at 50% of what its worth.
A test iI usually do when Im in this situation is to ask myself «Would I be a buyer of this stock at this price if it wasnt already a holding?». If the answer is yes, I hold. If the answer is no (due to deterioration of the moat and/or fundamentals), I sell.
So the best protection against making rash decisions when there is volatility in the market is to know the businesses you own on a deep level and the valuation you believe is fair. If you only look at the stock price movement, you will go insane. I usually dont look at the market moves on a daily basis because it is just noise.
I have written multiple articles on this subject, I find it very interesting.
Thanks for the great breakdown of Ackman’s strategy — clear, focused, and full of useful takeaways. I especially appreciated your point on conviction and patience. It’s a solid reminder that deep research and long-term thinking often outperform constant trading. Looking forward to more posts like this!
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Gday Guys, I m new to Substack. I only started publishing a month ago.
Below is my latest article, please check it out and hopefully you’ll enjoy.
https://open.substack.com/pub/drdenzonvalue/p/315-i-believe-is-visas-fair-value
Insider trading and fake calls on to stations
looks like he beat it when he was more into deep value.
then he underperformed. Shorts he did blurry the picture thought.
For most people, you shouldn’t try beating the market.
Just buy the market and chill.