“An investor should act as though he had a lifetime decision card with just twenty punches on it.” Warren Buffett.
“The success of Berkshire [Hathaway] came from two decisions a year over 50 years.” Charlie Munger.
So, why is it so important for me to adhere to the 20 ticket philosophy in the micro-cap world? Since I am not that smart, I need simple reminders to bring me back to the basic of value investing and disciplined, rational thinking. Patience, disciplined analysis with the decisiveness to act big when the odds are in your favour has proven to be the recipe for investment success for many of my investment heroes.
The share market, especially towards the micro-cap end, is an alluring world, full of things that can overwhelm my mind to have a “punt”. Think countless companies presentation with the pitch of “there is $x hundred million/$x billion worth of potential addressable market” and stock market forums with various agents that are talking their own books. I have fallen for those tricks…
Back when I was working part-time for a boutique microcap fund (and I was young and dumb), I used to find it funny that the CIO would wax lyrical about importance of “cocoon of independence.” However, the older I got, the more I agree with him. There is a lot of noise out there and you can get carried away and assume that “oh, I think this company will do a lot of wondrous things and take 10% of their so-called “addressable market.” That is not investing. That is a recipe for bleeding money.
There is a reason why the micro-caps are traditionally known as penny stocks. A lot of punters think that a 1c company ONLY needs to get to 2c for them to double their money. While that is mathematically true, micro-cap companies are usually of higher risk and are speculative. Key word being usually. The difference between “always” and “usually” makes all the difference.