…every farmer knows that after planting in a farm, there is a wait time before the harvest. That wait time has become predictable based on thousands of years of experience.
…every investor knows that after investing in a venture, there is a wait time before returns. That wait time has become predictable based on thousands of years of experience.
…every farmer knows that to guarantee a harvest, access control is required.
…every investor knows that to guarantee a return, margin of safety is required.
…every farmer cuts their losses when the wait time has elapsed and there is no growth. They realise it is time to plant again, this time, with extra care.
…every investor cuts their losses when the wait time has elapsed and there is no capital appreciation. They realise it is time to invest again, this time, with more care.
…most farmers follow the ideal.
…most investors do not follow the ideal.
Most investors do not really remember the wait time of asset classes when investing. They judge one year investments by performance in a week. Ultimately, they leave profitable investments too early to see any profits.
Most investors do not care about a margin of safety. They are seduced by the allure of profits, even when losses have proven to be more common.
Most investors stick to poor investments that have fully completed their wait time, because they are averse to moving on from sunk costs. In fact, the longer an investor holds on to a poor investment after the wait time, the harder it is to move on.
…understand the investment and its associated wait time. Do you understand enough to know how long you should wait?
…build in a margin of safety. Do you know how to analyze the intrinsic value of an investment, highlighting the margins between that value and popular perception?
…liquidate your investment at the end of the wait time. Do you have an exit plan?
– Osasu Oviawe