2.9 decisions a year (and $50 million)

NYC this week: Sunny every day, highs in the low-to-mid 60s, nights in the 40s. October’s being suspiciously nice. Pack a jacket and your feelings. Spent the weekend in Central Park with my kids. Felt like a 90’s romcom.

The number of the day: 2.9.

I met a guy in Hampton who sold a company for ~$10m in 2016. For the last decade his fulltime job has been buying individual public stocks.

His return: 21.8% a year. The S&P 500 did 13.5% over the same time. At most times he only owns 4-8 stocks.

Being that I’m a noisy sonuvabitch, I asked him to pull up his accounts so I could see the numbers (I use the excuse that I’m gathering this info to serve you, my dear reader. You’re welcome).

They were very good. His ~$10m is now worth ~$50m.

The returns are great. But the more interesting part came when we put his brokerage accounts into Claude and asked how many decisions he makes a year. A decision in his case means he’s either buying or selling a stock.

The answer was 2.9. And in some years, 0 decisions were made.

I find that interesting because we often correlate motion with good results. But for the average CEO or person with leverage, that isn’t the case.

Most people should not trade individual stocks. Index 4 life. But I love studying the decision making process of the rare ones who outperform the market. Ray Dalio, David Rubenstein, Lloyd Blankfein, Howard Marks. I’ve interviewed many billionaire stock pickers (Howard Marks is a bond picker, but close enough).

The successful ones have a few things in common that you, my fellow plebe, can apply to your life and business.

1. They make few decisions. “Lethargy bordering on sloth remains the cornerstone of our investment style,” Warren Buffett once said.

2. They don’t agonize over small decisions. Decisions are split into ones they can’t undo and ones they can easily reverse. Most decisions are two-way doors and don’t deserve agonizing.

3. They know their circle of competence. They say “no” often. Not because something is good or bad, but because it’s not within their area of expertise.

4. They write their big decisions down. Writing pre-mortems (imagine it’s a year later and why the decision blew up) and writing their thought process before the decision. Then they review it after to see if their reasoning was good or bad.

Interestingly, I texted my 2.9-decision-a-year buddy as I was writing this post. I just got done writing the bit above about commonalities of good investors. I asked him how he makes his decisions:

“I study a few things I feel I can understand, and I study them very deeply. I keep very detailed notes and then just wait for an opportunity. [Company name] for example, I had studied extensively about 6 months prior to Covid and really liked it, it just was expensive. So I kept my notes and kept an eye on it. Then an opportunity showed up.”