Picking up bad habits from “playing poker”

😓 My investing mistake

While I�ve made plenty of bad decisions that have been punished with poor share price performance, I�d argue one of the worst investment decisions I�ve made actually didn�t end badly!

As a young analyst I recommended buying a small semiconductor business based almost entirely on a meeting with highly enthusiastic company management.

It traded on an extremely high multiple of earnings and I had no intelligent way of valuing the business � but I was so taken by the story and the exciting promise of their technology that I recommended buying the shares regardless.

The shares subsequently appreciated in price over the next few quarters and at the time I thought that made me some kind of genius.

When I look back now, that was a truly horrendous investment decision despite the ultimately benign outcome. As a general rule, investing in a business you don�t really understand with no intelligent way of assessing its value is a recipe for disaster.

Equity investing is more like playing poker than playing chess: poor decisions aren�t always punished with poor results in the short term (which makes it disconcertingly easy to pick up bad habits).

The stock market can be a terrible teacher in the short-run and it is a constant challenge to evaluate the quality of a decision-making process without drawing questionable conclusions from a small sample of anecdotal outcomes.