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URL:  https://boards.fool.com/taking-a-page-from-your-thesis-about-34661245.aspx

Subject:  Re: Can we call it quits on FSLY v. NET? Date:  11/8/2020  5:18 AM
Author:  AThinkingFool Number:  73308 of 77993

Taking a page from your thesis about "tells" which by the way I find very helpful in thinking about these issues I would disagree somewhat with your assertion.

Hi Draj,

We are actually in agreement (and I like your interpretation of the 'tells'). Your current allocation can only reflect what you think is going to happen based on the information and the 'tells' available, but with ‘hindsight' whether you are right or wrong is defined after the fact. It is the outcome that will ultimately define whether your decision is ‘right or wrong’, with this concept. My point is more about hindsight bias.

I had replied to this effect in an email off board, but expanding here (edited). I guess this falls under ‘investing philosophy':

Right or wrong

What it comes down to, is how do you measure ‘right or wrong’? Is it simply returns?

That would feel too simplistic, because you are placing importance in the result rather than the decision making process itself, which could be flawed. You could be right for the wrong reasons, and vice versa.

Let’s take an example. You own two companies, ‘A’ and ‘B’, which are both founder led. This is an important part of your thesis, because you believe the founders are integral for the growth of both companies in its early stages. However, the founders of both companies have a falling out with their board and they leave, replaced with new corporate CEOs. The story has fundamentally changed for you, and you sell out of both companies.

The new CEO of company ‘A’ does not fit in, the company’s growth stalls, and it is acquired. Meanwhile the stock price has languished.
The new CEO of company ‘B’ however is a hit, the company’s growth accelerates, and the stock price explodes.

Assuming all other variables being equal in this scenario, you have taken the same decision in two instances, but were you right or wrong? If you are judging by returns, then your same decision was both right and wrong. This is hindsight bias in action.

Of course, you can take a ‘wait and see’ approach and sell out and then get back in if the ‘story changes’ back. But in the instance of company ‘B', you have already missed out on 100% returns since you sold.

Conclusion

There are simply too many variables to be ‘right’ 100% of the time, and too many unknowns. Like you said, you just have to make the most of the information available to you today to make your decisions, and maybe only hindsight will prove you right or wrong. But we should be cognisant of that. Your underlying decision could be right more often than not, and it is the 'more often than not' which is important.

Correlation is not always causation, and what drives returns are decisions. So making the ‘right’ decisions over the long-run will give you better returns, but not always. And this is why, for example, Saul has been such a successful investor over so long. He is ‘right’ more often than not.
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