Does anybody know any ways to avoid thumb sucking?

[Read the Footnotes]

Regret really sucks and Charlie and Warren advise us to avoid things we regret. They also often talk about their biggest mistakes being mistakes of omission, rather than commission which they refer to as "thumb sucking". So it seems like it is important to avoid thumb sucking.

 

Does anyone have any recommendation for methods or books or anything else that helps to avoid thumb sucking? It would seem like a finger licking good opportunity to follow up on if someone has some good recommendations.

 

So there's my post about thumb sucking and finger licking. I look forward to your responses.

[Spekulatius]

I recommend buying a tracking position (0.1% perhaps) when the valuation is in doubt. Those tend to be my largest regrets. So far, I have never regretted investing in lousy companies and fraudulent stocks, even when they do end up going up.

 

As for the real thing, try rubbing your thumbs or finger tips with Ghost Chile’s or habaneros. It sure will at least remind you that you are sucking thumbs, which typically is 80% of the battle  ;D

[Rod]

Regret really sucks and Charlie and Warren advise us to avoid things we regret. They also often talk about their biggest mistakes being mistakes of omission, rather than commission which they refer to as "thumb sucking". So it seems like it is important to avoid thumb sucking.

 

Does anyone have any recommendation for methods or books or anything else that helps to avoid thumb sucking? It would seem like a finger licking good opportunity to follow up on if someone has some good recommendations.

 

So there's my post about thumb sucking and finger licking. I look forward to your responses.

 

It may be less of an issue for small investors since we tend to have many more good opportunities than people working at the scale of Buffett. We can afford to miss things.

[Read the Footnotes]

I recommend buying a tracking position (0.1% perhaps) when the valuation is in doubt. Those tend to be my largest regrets. So far, I have never regretted investing in lousy companies and fraudulent stocks, even when they do end up going up.

 

As for the real thing, try rubbing your thumbs or finger tips with Ghost Chile’s or habaneros. It sure will at least remind you that you are sucking thumbs, which typically is 80% of the battle  ;D

Thanks for your thoughts Spek. There are definitely some good frameworks for thinking about the issue in your comments.

 

Here are a couple of questions. Wouldn't a 0.1% position still likely lead to regret? And how is that different from thumb sucking? Would a tracking position mainly differ by scale (0.1% vs 0%?) and the benefits of having a position might come at the cost of diworsification and increased tracking costs. Should we be looking to improve the odds of fully committing to the correct decision?

 

I like the idea of using pepper oils to prevent thumbsucking, but I see a couple of issues:

-First, have you already made the mistake by the time you are sucking your thumb, or is the thumbsucking itself the problem?

-Second, we really want to encourage the right decision which is to take an action in the real world and take a risk on other people or a company, which is more akin to sucking someone else's thumb. Putting pepper oil on someone else's thumb might prevent you from sucking that thumb, but that would mainly be of use when it would be inappropriate to suck on someone else's thumb, and what we are looking for is the rare opportunity when you should encourage yourself to act in scale when an opportunity presents itself. Plus, it is a little socially complicated to try to go around putting pepper oil on other people's thumbs.

 

So maybe we should be looking for positive reinforcement, rather than negative reinforcement?

[EricSchleien]

Regret really sucks and Charlie and Warren advise us to avoid things we regret. They also often talk about their biggest mistakes being mistakes of omission, rather than commission which they refer to as "thumb sucking". So it seems like it is important to avoid thumb sucking.

 

Does anyone have any recommendation for methods or books or anything else that helps to avoid thumb sucking? It would seem like a finger licking good opportunity to follow up on if someone has some good recommendations.

 

So there's my post about thumb sucking and finger licking. I look forward to your responses.

 

Read The Footnotes - I would assert you probably look at thousands of different things every year. Some of them will intuitively stand out to you and you'll later regret not buying them due to the run up in price. There will be others that also seem interesting and in hindsight if you had bought, it would have led to a lousy return over time. So statistically, there should always be ideas you had that you "sucked your thumb" on and later regret it. The way I've dealt with that for myself, is that is just an inevitable part of the game. If I look at enough stuff, there will always be things I wish I bought in hindsight.  At the same time, there are stocks I have bought and I think to myself, "Yeah I'm very glad I bought that."

 

So I'm not sure if the problem is anything actually there to fix. If you look at lots of stuff, it WILL happen. I'd just be with the fact that it comes with the territory of looking at lots of companies. I've done it plenty of times and will continue to do it over the next few decades as an investor.

 

In fact, I'd say if you don't have the experience of ever sucking your thumb, you've probably stopped looking at a large amount of securities every year. That can also be fine. Perhaps just index or buy stock in Berkshire or a basket of a few world class companies that you believe will outperform, even slightly, over the next few decades and then just buy stock automatically without thinking about it. You'll avoid the experience of "thumb sucking" by not looking at other investments and you'll probably perform investment wise quite well.

[BG2008]

I recommend buying a tracking position (0.1% perhaps) when the valuation is in doubt. Those tend to be my largest regrets. So far, I have never regretted investing in lousy companies and fraudulent stocks, even when they do end up going up.

 

As for the real thing, try rubbing your thumbs or finger tips with Ghost Chile’s or habaneros. It sure will at least remind you that you are sucking thumbs, which typically is 80% of the battle  ;D

Thanks for your thoughts Spek. There are definitely some good frameworks for thinking about the issue in your comments.

 

Here are a couple of questions. Wouldn't a 0.1% position still likely lead to regret? And how is that different from thumb sucking? Would a tracking position mainly differ by scale (0.1% vs 0%?) and the benefits of having a position might come at the cost of diworsification and increased tracking costs. Should we be looking to improve the odds of fully committing to the correct decision?

 

I like the idea of using pepper oils to prevent thumbsucking, but I see a couple of issues:

-First, have you already made the mistake by the time you are sucking your thumb, or is the thumbsucking itself the problem?

-Second, we really want to encourage the right decision which is to take an action in the real world and take a risk on other people or a company, which is more akin to sucking someone else's thumb. Putting pepper oil on someone else's thumb might prevent you from sucking that thumb, but that would mainly be of use when it would be inappropriate to suck on someone else's thumb, and what we are looking for is the rare opportunity when you should encourage yourself to act in scale when an opportunity presents itself. Plus, it is a little socially complicated to try to go around putting pepper oil on other people's thumbs.

 

So maybe we should be looking for positive reinforcement, rather than negative reinforcement?

 

I find that putting 20-30bps into a position forces me to look at it and pay attention.  Lots of time, I don't add to it

After 18 months or so, if the fundamentals aren't improving, I sell it.  If the fundamentals are working out, I'll add to it.  It helps.  CEO of Markel talks about this.

[Gregmal]

How many people "knew" better than to buy AMZN, TSLA, NFLX, FB, or even lesser known equivalents like TDG, HEI, WING, etc only to have it go completely the other way? Conversely, how many people "knew" of all the value in....dont know if I want to start naming names because its sensitive and subjective, so if you disagree with the name, try to focus more on my point.... SD, SHLD, SRG, etc? The truth is that most people dont really know, and even most of the ones that "do", dont escape the same fate. The trick is really just to find something you are comfortable with, company or strategy wise, and be consistent with its application.

[Spekulatius]

I recommend buying a tracking position (0.1% perhaps) when the valuation is in doubt. Those tend to be my largest regrets. So far, I have never regretted investing in lousy companies and fraudulent stocks, even when they do end up going up.

 

As for the real thing, try rubbing your thumbs or finger tips with Ghost Chile’s or habaneros. It sure will at least remind you that you are sucking thumbs, which typically is 80% of the battle  ;D

Thanks for your thoughts Spek. There are definitely some good frameworks for thinking about the issue in your comments.

 

Here are a couple of questions. Wouldn't a 0.1% position still likely lead to regret? And how is that different from thumb sucking? Would a tracking position mainly differ by scale (0.1% vs 0%?) and the benefits of having a position might come at the cost of diworsification and increased tracking costs. Should we be looking to improve the odds of fully committing to the correct decision?

 

I like the idea of using pepper oils to prevent thumbsucking, but I see a couple of issues:

-First, have you already made the mistake by the time you are sucking your thumb, or is the thumbsucking itself the problem?

-Second, we really want to encourage the right decision which is to take an action in the real world and take a risk on other people or a company, which is more akin to sucking someone else's thumb. Putting pepper oil on someone else's thumb might prevent you from sucking that thumb, but that would mainly be of use when it would be inappropriate to suck on someone else's thumb, and what we are looking for is the rare opportunity when you should encourage yourself to act in scale when an opportunity presents itself. Plus, it is a little socially complicated to try to go around putting pepper oil on other people's thumbs.

 

So maybe we should be looking for positive reinforcement, rather than negative reinforcement?

 

I find that putting 20-30bps into a position forces me to look at it and pay attention.  Lots of time, I don't add to it

After 18 months or so, if the fundamentals aren't improving, I sell it.  If the fundamentals are working out, I'll add to it.  It helps.  CEO of Markel talks about this.

 

I see it the same way. It forces you to get involved and pay attention. If it doesn’t work out or you bought you too expensive, the loss is manageable.

 

For me, the biggest issue to pass on opportunities is valuation. I think some stocks/business  looked good, but were too expensive At that time. i these cases, I should probably should still buy some. If the business is good, but the starting point was unfortunate, I might be a chance to buy more at a lower price.

 

If I don’t have a bit of skin in the game, I often forget about this entirely and end up doing nothing. It’s a mental crutch, but I think it works for a lot of people.

[merkhet]

I suppose it depends on the reason behind the thumb sucking. Was it fear of the unknown, inattention to what was going on, greed because of wanting to wait for an even better deal? etc.

[LongHaul]

Interesting question. 

 

I think really focusing the mind and research on 1 company when it is really cheap helps.  Block everything else out and then ultimately make a decision.  The noise has to be tuned out also.  The decision could be buy x% now or at y price.

 

[LC]

To simplify:

 

Get smarter, accept that you can’t see the future, or learn to see the future.

[SharperDingaan]

Everytime you buy/sell - 2 weeks after the transaction, you are either going to be right/wrong/no-difference.

That's reality, and all the research/analysis in the world isn't going to change it. Munger just recognizes that whether 2 hours of basic analysis, or 1 day of sophisticated analysis, the outcome is the same. You just feel better about the decision.

 

SD

[Gamecock-YT]

isn't this supposed to be the purpose of using the punch card method that WB and CM mention? Limited bets until when the odds are in your favor and getting out your giant pie pan to get a large slice?

[CorpRaider]

Don't ask me.  I wrote a post about Buffett's AAPL investment in almost real time that was really kind of gushing with enthusiasm.  Then I went off and probably bought like freaking Viacom or Wells Fargo or some such.

[Spekulatius]

isn't this supposed to be the purpose of using the punch card method that WB and CM mention? Limited bets until when the odds are in your favor and getting out your giant pie pan to get a large slice?

 

I think an application of the punch card method will lead to more thumb sucking, not less.

[scorpioncapital]

If they are mistakes of omission, it implies that you should have owned them, and perhaps in large size. Why didn't you? Random chance or you weren't very sure after all? Or the price got away? Philip Fisher says never nickel and dime a good potential investment. In today's world this could mean buying say 10-15% above your buying point. One has to figure out what leads to the thumb sucking. Not sure if Munger and Buffett ever explained why they didn't do what they knew very well. Presumably these are investments in the strike zone that you didn't take.

[Jurgis]

@ReadtheFootnotes: you've got a sweet thread going on here. Unfortunately, there are not that many attractive finger licking opportunities around nowadays.  ::) Maybe I just don't know where to look.  :-\

[SharperDingaan]

If ‘investing’ was purely formulaic, we would all use an algorithm.

The computer can do it a lot more reliably than you can, faster, and doesn’t make mistakes. We just don’t want to hear that WE'RE the liability, not the computer!

 

Actual, and forecast, are of course - very different.

You’re there because you can ‘handle’ the ambiguity better than the algorithm can - but thumb sucking is an indicator of process break-down … discomfort with the portfolio weighting, the roll in/out, consequences, etc. AND its risk management. Hard for the ‘diva’, everyday business for the ‘boiler-maker’.

 

Ultimately, it comes down to what works best for you.

Everyday, the computer gets better at handling ambiguity. You? Not so much – almost by definition, the ‘diva’ thing is a time-limited engagement. Comes the day the computer is better than you, use it – and switch to index trades.

 

Put diva’s and boiler-maker’s together, and you get an investment firm.

Put the ‘do more – whine less’ diva’s and boiler-maker’s together, and you get partnerships.

Different strokes.

 

SD