I offer a new entry, appropriate for the lingering Christmas season, into the proverbial “two types of people” in the world book: gadget people and non-gadget people. While I tend to fit into the latter category, I do wholeheartedly acknowledge that iphones, pads, pods and the like are here to stay and even we late adopters, given enough time, will be integrating them (albeit kicking and screaming) into our daily lives.
Anyhow, while entering the freeway ramp the other day, I found myself piddling with my (antiquated) ipod for the purposes of finding a desired podcast for the drive. Guilt sprang up within me, for, as most are aware, gadget-piddling while driving is one of the poorer decisions one who values not causing car accidents can make (gadget-piddling has been proven to be materially more dangerous than driving with .08 alcohol in the bloodstream). I reflected that I could have easily avoided this unnecessary danger by teeing up my desired listening in the parking lot of where I had just left. In other words, a rational decision maker would have figured out the listen of choice in the safe environment and then committed to it. At the cost of the tiniest loss of flexibility, I would have gained a (very) material reduction in the probability of physically harming myself, others, my property, and the property of others…pre-commitment to the podcast was a very easy decision to have made.
This minor epiphany got me to thinking about investments and the power of pre-commitment. It is, in all reality, a/the cornerstone of my practice. In quiet times and quiet places, we can think about businesses – their advantages, their sustainabilities, their growth runways. We can then decide if we can own them at some price and establish that level. Log it into our machine, pre-commit to it, and then wait (and, of course, update periodically). It’s really not a heckuva lot more complicated than that.
Perhaps the major challenge to the pre-commitment strategy is how well we execute on it when the buy day arrives. At such time, we obviously need review the thesis and update. I would offer that it also behooves to look out just a tick to what is going on in the investment landscape so as to minimize the damage to blindly jumping early. This was one of the bigger mistakes I made in our last bear market. In said bear market’s early innings of late 2007, I jumped a bit too aggressively into a few low quality (yet cheap, of course) opportunities just as the storm was beginning its rage…and, let’s be honest, it wasn’t that difficult to know at that time that a significant storm had been long overdue. Tiptoeing into the storm and gradually wading forward (i.e. buying down) would have proved much more profitable as it turns out than sprinting headlong into it as its outset.
Once we have updated our thesis and are comfortable enough with the investment landscape, action then does become required and should be undertaken in quick order. The time for the detailed deliberation is in the pre-commitment phase, not the execution phase. Attractive opportunities, in my experience, are fleeting and dilly-dallying becomes the great sin during their rare offering.
Eric Houssels
http://www.housselscapital.com/
Anyhow, while entering the freeway ramp the other day, I found myself piddling with my (antiquated) ipod for the purposes of finding a desired podcast for the drive. Guilt sprang up within me, for, as most are aware, gadget-piddling while driving is one of the poorer decisions one who values not causing car accidents can make (gadget-piddling has been proven to be materially more dangerous than driving with .08 alcohol in the bloodstream). I reflected that I could have easily avoided this unnecessary danger by teeing up my desired listening in the parking lot of where I had just left. In other words, a rational decision maker would have figured out the listen of choice in the safe environment and then committed to it. At the cost of the tiniest loss of flexibility, I would have gained a (very) material reduction in the probability of physically harming myself, others, my property, and the property of others…pre-commitment to the podcast was a very easy decision to have made.
This minor epiphany got me to thinking about investments and the power of pre-commitment. It is, in all reality, a/the cornerstone of my practice. In quiet times and quiet places, we can think about businesses – their advantages, their sustainabilities, their growth runways. We can then decide if we can own them at some price and establish that level. Log it into our machine, pre-commit to it, and then wait (and, of course, update periodically). It’s really not a heckuva lot more complicated than that.
Perhaps the major challenge to the pre-commitment strategy is how well we execute on it when the buy day arrives. At such time, we obviously need review the thesis and update. I would offer that it also behooves to look out just a tick to what is going on in the investment landscape so as to minimize the damage to blindly jumping early. This was one of the bigger mistakes I made in our last bear market. In said bear market’s early innings of late 2007, I jumped a bit too aggressively into a few low quality (yet cheap, of course) opportunities just as the storm was beginning its rage…and, let’s be honest, it wasn’t that difficult to know at that time that a significant storm had been long overdue. Tiptoeing into the storm and gradually wading forward (i.e. buying down) would have proved much more profitable as it turns out than sprinting headlong into it as its outset.
Once we have updated our thesis and are comfortable enough with the investment landscape, action then does become required and should be undertaken in quick order. The time for the detailed deliberation is in the pre-commitment phase, not the execution phase. Attractive opportunities, in my experience, are fleeting and dilly-dallying becomes the great sin during their rare offering.
Eric Houssels
http://www.housselscapital.com/
