Investing Psychology – Part 5: Conviction backed by research & Mindset patterns

November 26, 2020

Part 4 delved a little into how charts show group behaviour. The feedback has been great and Fahd and I plan on doing a whole series of videos and articles on charts.

To appreciate this instalment in the series, I recommend a refresher of Part 3 – Holding with patience, where the growth really happens.

Fahd and I are long term, growth and value investors, not short-term traders, and we believe in detailed research. We also mix finding smaller companies or misunderstood companies earlier than the rest of the market, taking positions early and holding with conviction backed by in-depth research.

As Fahd likes to say, if we can’t talk convincingly about a company we hold for 15 minutes straight, we’re not buying it.

After our research and analysis, we buy companies when the share price is below our long-term valuation and sell only when fundamentals change or they are significantly overvalued.

As shareholders, we act like owners of the company – we’re not sweating on daily share price variations, as you can imagine, no CEO worth their salt is sitting at their desk all day wondering if he or she should sell all their shares if the share price rises or falls by 10%.

Can you imagine Elon Musk selling out of Tesla early in its history so he could “leave some profit for the next guy”?

Following other’s recommendations blindly isn’t ideal

If there is one thing you can take away from this article, let it be this:

The main thing that allows you to hold during volatility is conviction and belief in your stocks. Conviction is non-existent when simply ‘following’ someone into a stock. Do not simply buy stocks based on social media tips, or because someone else purchased it.

Tabarruk’s ‘edge’ is conviction based on knowing our companies better than anyone else. Understanding and analysing the company, their product or service, the sector, the competition, the management and anything else that’s relevant, with in-depth research.

That is what creates conviction, which makes holding with patience possible.

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