Max Koh @heymaxkoh:
I’ve received a ton of crappy investing advice over the years.
And I see even more here on Twitter.
What I'm about to say will piss off some people.
Don't read if you’re easily agitated.
Still here?
Then grab a whiskey and here’s 20 investing “truths” that just ain’t so:
Max Koh @heymaxkoh:
1. “The Intelligent Investor” is not compulsory reading
Except for chapter 8 and 20...
I laugh when I see someone recommend the book to a beginner.
You are doing more harm than good for the poor soul.
It will overwhelm them and kill their interest for investing.
Max Koh @heymaxkoh:
2. Picking individual stocks isn’t for everyone
90% of people lack the temperament to be good investors.
If seeing your net worth get eroded by 30% or more scares you...
Then this is not the game you're built for.
It'll cause you more pain than joy.
And you won't last long
Max Koh @heymaxkoh:
3. Concentration isn’t an action. It’s an outcome
Concentration is mostly a result of letting your winners run.
It's an outcome that comes from great performance.
It's NOT something you do from day 1 based purely on your own blind faith (or ignorance).
Max Koh @heymaxkoh:
4. You can be a good fundamentalist and still lose $$
Making money in stocks is 90% emotional mastery, and only 10% intellect.
You have to be a master of your own psychology.
That’s why you see many amazing analysts on Fintwit who are terrible investors.
Sorry I said it.
Max Koh @heymaxkoh:
5. Diversification isn’t for idiots
People who diversify are those who acknowledge that they don’t know what the future holds.
It’s healthy to have self doubt.
The real idiot is the one who goes all in purely because you spent months deep diving the business.
Max Koh @heymaxkoh:
6. You can be a poor fundamentalist and still make $$
You see this all the time.
Many investors who don’t seem to know as much about a company as you.
They don’t seem as smart.
But their returns and wealth trump yours.
And you dismiss it saying “that b**tard got lucky”...
Max Koh @heymaxkoh:
(Continued...)
Well, maybe they aren’t as smart.
But they had the emotional temperament to hold on and buy when there was blood…
While you were busy analyzing the EV/S ratio of the company and 50 of its peers.
Life isn't fair.
The game rewards those who are made for it.
Max Koh @heymaxkoh:
7. The size of the moat isn’t as important as its direction
Also known as the moat trajectory.
Some companies have wide moats, but it’s stagnant or shrinking.
Some others have small emerging moats, but it’s growing rapidly...
Max Koh @heymaxkoh:
(continued...)
Most of your wealth as an investor will be made when you own a company as it’s developing it’s moat.
Not after it already has one.
Learn to spot moat developments.
Max Koh @heymaxkoh:
8. It isn’t cheap just because the stock dropped 50%
When the stock is falling, it feels good to be buying more.
Makes you feel like a true blue value investor.
Unfortunately, price tells you nothing about what you’re buying.
Max Koh @heymaxkoh:
(Continued...)
Some companies are poop.
And even a 50% drop will not turn it into a flower.
Always start from the business quality first and know what you’re buying.
Don't let price movements influence you.
Max Koh @heymaxkoh:
9. Just because a stock doubled in 1 month doesn’t mean it’s expensive
A great company can still be cheap if it has a long runway.
Even if the price has gone way up in the last few months…
It could still be in early days.
Buy some, and buy more as they execute.
Max Koh @heymaxkoh:
10. A company can be a better buy at $200 instead of $20
When companies are much smaller, they’re less proven.
But as they execute and their revenues grow, their market cap grows too.
So a company can be a safer bet when it’s bigger.
It’s all about the execution.
Max Koh @heymaxkoh:
11. Management is the most important moat of all
In the end, almost everything can and will be copied.
What endures will be the culture and quality of people running the ship.
That is much harder to replicate.
Max Koh @heymaxkoh:
Speaking of management...
Find great leaders and teams who impress you with their character and values.
You often find positive surprises when you invest in good quality managers.
They also help you sleep better at night when your stock drops 50%.
Max Koh @heymaxkoh:
12. Tailwinds matter
Yes, we’ve all heard that there are champions in every industry.
But why position yourself against the wind when you can sail with it?
Invest in industries that are enjoying a secular shift.
It doesn’t guarantee wins.
But it reduces your chance of loss.
Max Koh @heymaxkoh:
13. Valuations don't always matter
Especially for great businesses who are executing flawlessly…
They tend to hover between expensive and nosebleed prices.
If you’re always waiting for the correction to come, there will be opportunity costs.
Instead, enter in tranches.
Max Koh @heymaxkoh:
14. I lied, Valuations are still important
Yes, valuations are not always key.
Especially when taking a starter position to get skin in the game.
But you must still have a rough estimate of intrinsic value of the company.
They help you stay sane during market corrections.
Max Koh @heymaxkoh:
(continued...)
When you have a clear stake in the ground of how much your business is truly worth…
You won’t panic when a drunk bidder offers to buy it from you for 50% less.
But most people don't know how to value the business they own.
That's why they sell to a drunk buyer
Max Koh @heymaxkoh:
15. Management is important, but execution is king
The quality of the people matters.
But make sure the numbers align with the narrative.
For great companies with great leaders, you should see a consistent trend in their key metrics.
Max Koh @heymaxkoh:
(continued...)
Other than some hiccups along the way…
The overall direction of the business and metrics should be moving up.
Otherwise, something is amiss.
I get suspicious if the management says a lot but numbers are taking a long time to show.
Execution is everything.
Max Koh @heymaxkoh:
16. Even if you pick good stocks, you could still lose $$$
Picking a good business doesn’t guarantee success.
Because the price you pay matters.
Your ability to hold on matters.
Your time horizon matters.
Max Koh @heymaxkoh:
(continued...)
Everyone talks about buying a good business and letting it do its thing.
But don’t forget that the real money is made in the waiting.
So you need to optimize your portfolio to allow you to wait.
The biggest enemy you should protect against is your impatience.
Max Koh @heymaxkoh:
17. Everyone talks about product-market fit.
Nobody talks about investor-portfolio fit.
Even if you own the best companies, you could still lose $$.
Because your portfolio may not be constructed in a way that suits your unique personality.
Max Koh @heymaxkoh:
(continued...)
To endure drawdowns and hold through…
Your portfolio must fit your specific risk profile and time horizon.
And you only learn whether your portfolio is suitable for you during corrections.
The market is an expensive place to find out who you really are.
Max Koh @heymaxkoh:
18. TAM is overrated
The best businesses grow their TAM as they execute.
Instead of looking at the size of the TAM and narrowing it down to a specific number…
Focus on the magnitude of the problem they are solving.
The best companies solve big problems that matter to many.
Max Koh @heymaxkoh:
19. It’s all about revenue growth
The key to stock price appreciation is growth.
Consistent revenue growth.
So before you invest...
Understand the source of a company’s growth and evaluate whether it’s sustainable.
Which brings me onto the next point…
Max Koh @heymaxkoh:
20. Actually, it’s not just growth.
It’s all about operating leverage
That, my friends, is the secret sauce.
The biggest gains in a stock happen when earnings/ profits grow faster than revenue.
Max Koh @heymaxkoh:
(continued...)
What is operating leverage?
When fixed costs remain stable and revenues spike.
Earnings shoot up!
That’s when you witness the incredible hockey stick curve in the share price.
Look for indicators that tell you that’s possible for a company in the future.