When it comes to individual stocks, we believe our biggest mistakes are
not the investments we made that lost money but those exceptional
companies we failed to recognise and invest in.
We know that losses are limited to the size of the original investment.
You invest one pound, and you may lose 100 percent of that pound.
But the maximum upside of a fundamentally
successful investment is theoretically unlimited.
So to quote Jeff Bezos, “If you have a 10 per cent
chance of 100x return, you should take that bet every
time even if it’s going to feel bad nine out of ten times.” To focus on what might
go right rather than wrong, investors need to be long-term.
To pay attention to the fundamentals of
the company and the world it exists in and how that opportunity can persist.
It also requires the courage to hold fast,
believing that the long-term upside can outweigh what we stand to lose.
Having an asymmetric portfolio supports the acceptance that we
cannot tell the future.
By holding diverse stocks we aim to dilute the impact of the ideas that
didn’t work and remain long-term by softening
the effects of short-term bumps.
If the success of a few outlier companies can make up for the
underperformance of the rest, it makes sense to break away from
the fixation on short-term risk.
Inevitably, some of the investments turn out wrong.
But only by embracing uncertainty, being brave and remaining long-term,
can we hope to find the small group of special companies
that ultimately matter.