Moneyball is somewhat similar to value investing where we buy assets with high earnings power or value for the least amount of money possible. I decided to start this series to look at some of the timeless lessons from Moneyball that are applicable to investing. I hope that you would have as much fun reading this series as much as I had writing them.
Starting over from scratch is never easy. When the Oakland A’s lost 3 of their best players in the post season, the management decided to take a different approach to build their team; by relying on a different set of statistics.
This is no walk in the park and it was not going well for them initially. A few weeks and doubt has crept in, slowly. However, they managed to stay resilient and soon their doubt has reversed out of their minds and parked far away from their goals.
In many ways, this is similar to what value investors face. No matter how confident we are before we buy into a certain stock, doubt creep into our heads whenever we see it go the other way. I myself had faced numerous occasions like this (mostly happens when I go contrarian and try to catch the knife).
Doubt appears when we are uncertain and it tells lies to ourselves which we begin to believe. But doubt is not based on evidence. All doubt tries to do is write the ending of a story which hasn’t played out yet. At the same time it is clueless of the plot and events that will occur.
However, I learnt that if you can admit that you are starting to doubt yourself, you can control it and this gives you the strength to overcome it and keep going.
My way of overcoming doubt:
1 – Re-examine the Evidence
Whenever things don’t go my way, I re-look into my investment thesis and financial numbers to ensure myself that I have done my homework and it is correct.
For example, when the share price of Straits Trading (SGX:S20) wasn’t doing so well, I went through my research and convinced myself that my investment is a long term play and eventually they will be able to unlock their assets’ value (ARA Asset Management).
It is hard to keep doubting yourself when you have evidence to back your investment decisions.
2 – Be Willing to Change Course
Sometimes, doubt is like a lighthouse that keeps you from getting shipwrecked. Knowing when and how to change course is important.
Occasionally, i jumped into a stock too rashly and it did not align with my other investments. An example would be Pacific Basin Shipping (HKEX:2343), my play on the shipping recovery is largely dependent on the price gap between high sulphur and low sulphur content fuels. Only companies who decided to install scrubbers on their ships will be able to enjoy access to cheap high sulphur fuel.
Pacific Basin Shipping decided not to install scrubbers on their ships. While it is still largely cheap and the rise in shipping rates would also benefit them ( which is why I invested in them), the better play would be in those scrubber fitted dry bulkers or product tankers. Hence, I made the switch to Scorpio Tankers (NYSE:STNG) instead.
3 – Quit Trying to Predict the Future
When we doubt ourselves, we’re trying to predict the future and that is impossible.
Rather than being frustrated that you don’t currently possess the answers to the numerous scenarios playing in your head, attempt to solve the problems by finding the answers to clear your doubts.
Another way would be to always bear in mind the worst case that could happen to your investment and be prepared for it.
For me, sometimes the worst case would be losing the entire investment and by limiting to investing a maximum of 5% of your portfolio would not hurt you that much if it really happens (On second thought, it could really hurt if all 20 of your stocks goes to zero lol).
4 – Keep Taking Action
Doubt will sometimes scares you into not taking action. A wrong investment doesn’t mean you can’t invest and you have to rely on others to invest your own money. Keep refining your investment methods to see which works best and stick to it.
If you keep taking action, you will find ways to achieve your goal and that will bring you certainty and confidence.
I just remembered a quote from the political Netflix series House of Cards which echoes these thoughts
To improve is to change. To perfect is to change often.Winston Churchill
5 – Learn and Grow
Don’t be afraid to fail. Even if you did, only the harshest of situations will teach you many lessons and you’ll grow because of it. As Homer Simpson says, “This is the worst day of your life so far.”
Doubt reveals to me what are the skills or knowledge that I need to obtain. Like a compass, it points to me the direction I need to head to improve myself.
It is like a to-do list of steps that will change your life.
Keep going and stop doubting yourself.