DEEP RESEARCH · INVESTMENT PHILOSOPHY
Stocks Are Hard: Investment Philosophy REV2, Rebuilding Cash and Rules
A reflection after reducing exposure on March 20 and a reset of long-term investment rules
0. Bottom line first
There is an irony in stocks: they are hard, but I still have to bet. To raise the probability, I need humility before the market. The core lesson from this revision is: when I feel uneasy and reduce positions, hold the reduced portion in cash.
I think humility is needed. Dear market, I was wrong. On March 20, when I felt uneasy and cut exposure, I should have cut more.
Interpretation: I reduced the number of positions, but increased the weight of the remaining names with the same betting money, so it was effectively the same. In a way, it was arrogance that I could beat the market.
1. Two newly added rules
If I cut because I feel uneasy, keep cash
When I go from feeling good to feeling uneasy and reduce positions, do not immediately add that reduced capital to other positions. Hold it in cash.
Do not delay rules because of flows
Do not postpone stop-loss or exposure-reduction rules just because institutions or foreigners are buying.
Building an investment philosophy is harder than expected. But simply organizing my own principles and direction has meaning. Even if it is imperfect, I plan to record what matters to me now and revise it over time.
2. Long-term goal: growing future cash flow
The purpose of investing is not my short-term cash flow, but increasing future cash flow after retirement. Over the long term, I want to look toward the point when I receive pension income and focus on assets with sustainable advantages.
To invest without being shaken by volatility, I need to allocate capital to places that can grow. In particular, I want to select good industries and good managers.
| Goal | Rule | Checkpoint |
|---|---|---|
| Increase post-retirement cash flow | Long-term asset allocation over short-term trading | Can I hold it until pension age? |
| Sustainable advantage | Select good industries and management | Is the future change realistically achievable? |
| Volatility response | Endure with cash and rules | Can I explain why I am redeploying money that I cut because I felt uneasy? |
3. Attitude toward volatility: cash, not words
Market volatility is unavoidable. As the saying goes, stocks move from those who cannot endure volatility to those who can. I want to practice steady investing through thorough research and conviction in companies.
But I cannot endure volatility with words alone. To endure volatility, I need cash.
Especially when stocks rise excessively and I feel good, I need to revisit the original investment thesis and check whether there is additional growth or a realizable idea ahead. If I reduce positions, I should hold that amount in cash or check whether there are deeply undervalued assets such as Treasuries, gold, or dividend stocks.
Interpretation: If cash is that attractive, I must ask whether I really need to buy more of existing positions with the money from reduced positions. If I raised cash because things felt uneasy, do not do something incomprehensible like buying back the very names I reduced. Really.
4. Concentrated investing and crisis response
Concentrated investing should be limited to companies at the bottom of their PBR band and companies where I judge the future change to be at least 95% likely to materialize.
I analyze how companies responded to past crises and use management's decision-making ability in crises as an important criterion. I also examine companies that outperform during market-crisis phases on the chart. In crisis phases, many stocks become oversold, so I think valuation can matter a little less.
5. Related records
This post extends previous notes on asset-allocation thoughts and an initial investment-philosophy draft. The related records are [Asset Allocation] Thoughts and [Investment Philosophy] Draft.
End.
Sources
- Original Naver Blog post: https://m.blog.naver.com/PostView.naver?blogId=star_of_self&logNo=223812165486
- [Asset Allocation] Thoughts: https://blog.naver.com/star_of_self/223804041348
- [Investment Philosophy] Draft: https://blog.naver.com/star_of_self/223711188038