What is good investing?

When I had started out (I’m still in my first steps in this world!) on my journey in Financial Markets, this question seemed like a very stupid one. After all, good investing was anything that made me money. Who cares how that came about — whether it was YOLOing on the latest shit coin, predicting macro shacro, claiming superior understanding of a few strokes of paintbrushes/ JPEG of an ape, drawing lines on a squiggly chart, or god forbid, picking stocks by studying underlying businesses.

In hindsight, the definition for good investing for me has only changed slightly - Good Investing is still putting in money to get a lot more money back but without any chance of losing it all.

Watch me burn!

“Duh!” was the response of my friends when I told them of the profound change in my definition. Obviously you never want to lose all your money when you’re looking for more money back. It’s so seemingly simple but then again, extremely hard to put to practice. You don’t even need to look too far away to see this, just log on to r/wallstreetbets.

While dissing on the degenerates at WSB is easy, us sophisticated types are just hiding behind the veil of sophistication to hide our degeneracy. A non-exhaustive list of examples of this include:

• Using heuristics like RSA, Support Levels, lines on a price chart without understanding hindsight bias.

• Trying to algorithmically trade without having the compute power or even the army of STEM PhDs with institutional investors

• Buying into Shitcoins because a 16yr old bought a lambo using those

• Using options without understanding how they truly work

Don’t beat around the bush - what is good investing practically then?

Good investing still rests on just three tenets as Ben Graham originally described:

1. Understanding that stocks represent businesses

2. Having a margin of safety

3. Not giving into the mood and momentum of the market (or Mr. Market)

Most seemingly simple things are hard to implement though, including but not limited to watching what you eat to lose weight, just being yourself in social situations, and not binging on a full season of How I Met Your Mother to get enough sleep.

On Margin of Safety, always, always have a margin of safety beyond the intrinsic value for a business. Always start with the basic underlying fact that you are and will always be a buggy idiotic human being. You will miss out on some piece of information regardless of what you do and the cushion for your stupidity is the margin of safety. Growing up with a father from the “miss” generation who just put money in FDs and Post Office savings accounts, extreme risk aversion was my first financial advice. In fact, it has caused me good pain where I regularly undervalue stuff till a real buying opportunity presents itself. I would rather miss buying on the good stuff than artificially lowering my margin because I will necessarily get addicted to lowering it even further down the line.

On Stocks as businesses, curiosity coupled with intellectual honesty is the source of competitive advantage. There are two parts to this:

1. First, be genuinely curious about how every piece of the business works till you can explain it to a 5 yr old. Do the homework, talk to people inside, and outside the business. Use your judgement to figure out what could make a business have a moat with its customers.

2. Second, be honest to yourself. Know what you know and know what you don’t. Stay away from things you don’t understand. Pick areas which you’re more comfortable with through your own expertise either through education or legitimate research. If you don’t understand something, don’t fool yourself into thinking you do.

On Mr. Market which arguably is the hardest of the three, stick to the north star of your investing framework. The woods of markets are real lovely, and real fckin deep. Keep reminding yourself to stick to picking good businesses and not get lost in the latest fad that’s running around. Trust me it’s super hard doing this — particularly when you read WSB and see a 16yr old turn an NFT for millions overnight. It is of paramount importance regardless. If you can’t do this, and most can’t, you’re just better off with the index.

Closing Thoughts

It’s been a fun journey so far in this world, but it’s good to keep reminding myself of what should my starting point be in any investment. For most part my index fund takes care of my money needs - if I am to however do investing myself for whatever reason, I atleast should do the good kind. I can always turn to Reddit for indulging my darker desires.