Operating mindset for investors in 2021
How to think about investing during this bull cycle
I love buying private and public businesses for the long-term, and I’ve lived through multiple cycles doing that. As always, this is not a gimmicky ‘buy THIS’ list, rather a framework for investors on how to think about this market cycle. My personal goal for this blog is to empower people with insights to help make better investment decisions. If you’re new here, make sure to subscribe: The Eudaimonic Investor is a newsletter is about all things tech and investing in startups, crypto, and the stock markets.
Thinking long-term: It’s wild in 2021. The market is flushed with liquidity. Every day you hear of major monies flowing into startups, crypto, stock markets, collectibles and whatever else that may or may not have intrinsic value. Every cycle you have a mixed bag of investors, some shouting ‘doom’ from the rooftops while some talking as if the music never stops (it always does). For an average investor, all this noise is confusing AF. You need to define your own mental models and investing style to get through this.
My mental model for investing through these ‘bull’ cycles might disappoint a few folks, but it’s quite chill: focus on the long-term. It might sound alien in the days of 1000% return in 8 months, but thinking long-term makes it easy for me to say NO to almost everything that’s not a ‘hell yeah’ kind of an opportunity (ft. Derek Sivers). If I’m confused, can’t build conviction, unsure, I’d rather say no because I’m not playing the same short-term/quick-gains game as others. Some people take themselves so seriously, especially the first-time investors, that they start believing that an opportunity like the present might never come again. As someone who’s lived through multiple cycles, I can say with high conviction that the opportunity to buy interesting assets presents itself multiple times if you’re a long-term player. Think not in days, weeks, or months but in decades. Don’t buy assets that you wouldn’t want to hold for at least a decade.
A prepared mind: There’s a reason why Warren Buffett is sitting on $146 Billion in CASH right now. He’s prepared to go shopping, just the way he has always been right before a downturn. As Charlie Munger says, opportunity favours the prepared mind. Every cycle you hear people saying ‘this time it's different & the truth is that it never is. To prepare your mind, you need to be tuned in to the pulse of the macro and the micro. I’ll go to the extent of saying that knowing what’s happened this year is not enough, you need to trace back to 100 years to really understand what’s going on. And on top of that, you need to do the inner work to inculcate discipline and self-awareness to catch yourself in the moment before you decide to act impulsively. It takes consistent hard work to be in the top 1%.
An example of how I prepare for opportunities is by having a framework to rely on for startup investments & sticking to it (that’s the imp part). Usually, I’m quick to decide on where to invest, because before I even get the startup’s deck, I would already have a ready thesis on the space and the white opportunities that exist as a result of having read deeply about the space, my own operating experience or interactions with insiders in specific domains. I may not have it written down or in a deck, but it’s ready in my mind: I’m just looking for the right team & right market timing to go in.
Get to the truth: I went through an intense phase of inner work this year. I was reading about topics such as free will, consciousness, history of philosophy, and a long list that I won’t bore you with. One of the best things I learned this year that in itself has made me a better investor is this: Several seconds before we consciously make a decision its outcome can be predicted from unconscious activity in the brain. WTF, right - but it’s been scientifically proven. What this means is that we are all a result of our conditioning, our past experiences, and what we’ve been exposed to because our subconscious mind primarily relies on those inputs to make decisions even before we consciously realize. Knowing this fact should help you realize how unconsciously we’re living our lives.
Our views of the world are extremely biased. As Morgan Housel wrote in his book Psychology of Money, “Your personal experiences make up maybe 0.00000001% of what’s happened in the world but maybe 80% of how you think the world works.” Now given these facts, you must pause and ask yourself - do I see the world the way it really is or not? Often being plugged into our digital world all the time, creates an unnecessary sense of urgency and tension and makes us react in ‘herds’. And if there’s one truth about investing is that you make the most money when you’re contrarian and right. To get to the truth, you need to find pockets of real quiet time to think and develop your own worldview and be cognizant of your biases. If you don’t, you’re living a life that’s not fully your own, without even realizing it.
If you enjoyed reading this piece, please do subscribe or share it with your friends. This newsletter is about all things tech and investing in startups, crypto, and stock markets called ‘The Eudaimonic Investor’.