In my first investing memo, I wrote I’m going to be a long-term contrarian value investor. But in less than a year, I’ve taken profits and cut losses on multiple positions, traded short-term options, and entered new trades with less than long-term timeframes. In some way, I’ve violated every adjective I put before “investor” by making short-term, consensus, and poor risk/reward decisions. Some reflection:
It’s HARD to be a long-term investor in practice. Holding onto positions through large drawdowns requires conviction, and building conviction requires tons of research and understanding of the company and industry you own. A sufficient criterion for conviction is when you are no longer impacted by unjustified mass selling events or negative news and social media storms of emotion because you know you understand your investment better than the market does. It’s also easy to give in to emotions and FOMO into positions you don’t understand or get bored, sell, and move on to a new theme.
When I originally entered the uranium trade, I had a 3-5 year timeframe in mind. It’s worth clarifying here that different people have different definitions of long-term: compounder bros might say long-term means “hold forever” while cyclical investors may have a much shorter definition in mind. But I’d argue even without an exact definition of long-term, it’s clear when someone has a short-term vs long-term mindset or framework in place. I still own a ton of uranium, but I often find myself questioning the thesis or getting bored and wanting to move on to something new. External pressures don’t help either – the first time you mention uranium to someone else they might find it interesting, but if you’re on about the same idea multiple years later they’ll probably think you’re crazy and have tunnel vision.
An investor’s convictions have to be strong enough to counteract all of these internal and external forces, but they rarely are. This is exactly what makes investing so hard.
I remember watching some of Roaring Kitty’s (DFV) YouTube videos after the GME fiasco. After he had discovered the GME trade, he couldn’t stop talking about it. Every video somehow came back to GME and every idea was benchmarked against GME (why buy X when I can buy more GME for a better R/R?). His level of conviction was amazing to me, but to the casual observer it may have just seemed an insufferable obsession.
I find myself becoming “obsessed” with my stronger investment ideas, which I know is a good thing. But at the same time, I seem to be poor at building conviction and executing once I have it. I’m good at doing research, I just don’t do enough of it, probably because I don’t have enough time to. I also have shaky foundations in economics and corporate finance, which sometimes may erode my trust in myself – that’s a big problem. I’m also not great executing on my conviction once I have it – I never seem to size initial positions aggressively enough and regularly find myself buying tops. Timing the market doesn’t bother me as much as failing to secure a large, concentrated position while still being able to sleep at night.
As I continue adapting my investment style to my personality, I’m realizing I don’t exclusively have to be a long-term investor. I think trading can actually… work. Don’t get me wrong, I still think 99% of technical analysis is complete horse crap, but I feel there are niche and novel trading strategies that work. Examples: vol rerate in illiquid OFS/OSD warrants, front-running uranium ETFs, post-BK forced selling strategies and other special sits. This may be the classic case of “everyone think they are a genius in a bull market” (commodities = bull market here), but I feel like I’ve entered a few good trades myself: catching rerate in VAL and SV warrants, being early to the Cameco de Mayo options buying spree, etc. However, due to my lack of clear trading rules (because of my perception of myself as a long-term investor), I didn’t exit any of these trades properly.
The conclusion I’m rushing to here is that for me to maximize my potential as a market participant, I should incorporate elements of trading and investing, in appropriate sizes. Trading helps generate passive income and stave off boredom which makes it easier to hold long-term, high-conviction plays. But in order for this to succeed, you need to keep trading position sizes small but somewhat significant and stick to trading rules.
To recap, I need to work on a few things as an investor: I need to rethink my investing framework, work on building conviction and executing trades, and continue building a stronger foundation so I have trust in myself as an analyst.
Other tangential thoughts I didn’t incorporate into today’s poorly written spiel:
You can (and absolutely should!) borrow ideas but not conviction.
The three technical indicators that may be useful: Volume, IV, and RSI.
Navigating the noise to find useful signals is really hard, especially when a lot of noise is magnetic.