Theoretical Max Return vs Actual Achievable Return

By Roberto Croce (Roberto Croce) [Public domain], via Wikimedia Commons

All Time Sleeping Average: (Target) 7h30m / day (Actual) 7h32m / day (137 night average)

3 Day Sleeping Average: (Target) 7+h / day (Actual) 8h14m / day (6h53m, 9h53m, 7h57m)

I think a lot of times people forget that the best investment strategy isn’t one that has the highest theoretical max return (eg. ~38% return from net net stocks), but the investment strategy that suits your temperament.

This is because every investment strategy (similar to poker) requires a certain period of time (a.k.a. a full cycle) before luck / unluck weeds out and the actual returns to fully surface. And unfortunately for most people, not everyone can stick with any investment strategy through thick and thin to reap the full benefits at the end of each cycle.

Some investment strategies maybe too illiquid, some requiring too much inactivity, and some requiring too much monitoring. The list of reasons why not every investment strategy suits everyone is endless.

That’s why I stick to wide moat stocks and diversify. I like to make one good decision (buy a great company at a bargain price) and not have to do much for the rest of time (why I like wide moat stocks). I like to feel comfortable that my portfolio can survive black swan events (why I like wide moat stocks and diversification). I like to study moats (why I like wide moat stocks). I like to spread my bets (why I like diversification). I like to know the buy and sell price of each of my stocks (why I like individual stocks).

Also knowing I had a fidgety temperament, I intentionally / unintentionally played tons of poker using a loose passive style to become callous to losing hands and internalize the lesson that short term losses are okay as long as your strategy generates long term profits.

Playing loose passive meant that I got to take a look at quite a lot of hands (which shielded whether I had great hands or not), and playing passive helped minimize the max. loss / hand while enticing others to raise heavily and frequently to try to scare me away. A lot of times I would be “scared away”, but when I hit the motherload pre-flop or after the flop, my aggressive competitors were in for a world of hurt.

And it made me truly understand what Charlie Munger meant by “Experience tends to confirm a long-held notion that being prepared, on a few occasions in a lifetime, to act promptly in scale, in doing some simple and logical thing, will often dramatically improve the financial results of that lifetime“. Internalizing that lesson has ultimately made me a better poker player, but also a better investor.

And what’s better is, compared to poker where I had to pay a fee (when checking) to get the chance to participate in an opportunity to make money and was forced to pay to wait (big blinds / small blinds), the chance to participate in the stock market and waiting for a fat pitch is literally free

Going forward, these are going to be strong reasons why I’ll have a good chance to stick with my investment strategy through thick and thin and reap the benefits over a full cycle.

So what’s left? Hope I can actually walk the talk rather than talk the talk. This blog and my imaginary stock portfolio will be my testimony.


Not advice. No offer. Do not rely. May lose value. Risky. Conflicts hidden/obscured. (Borrowed from Terrence Yang‘s Disclaimer on Quora)


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