The Art of Execution looks at the decisions investors make after taking a position in a stock. Whether you are up or down on your original investment, it’s easy for different behavioural biases to affect your judgement.
Book notes
Don’t get into a position that is too illiquid to sell on public markets
Ensure your views reflect reality
Don’t be slow to change your mind
Get comfortable with crystallising losses
Big positions can make you indecisive
Have a plan before making an investment about what you will do if it doesn’t work out
Ask yourself: “would I buy into that stock [today] given what I now know?”
Speak to people with opposing views
“A loss of 33% requires a 50% subsequent return to break even.”
Don’t let the original rationale for investing cloud your later judgement
Beware of the “break-even effect” – risk-seeking behaviour after suffering a loss
And beware of the opposite effect – risk aversion when you are ahead
Peter Lynch: “I’m accustomed to hanging around with a stock when the price is going nowhere. Most of the money I make is in the third or fourth year that I’ve owned something.”
Target long holding periods of ten years or more
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