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 Back in 2020, when the stock market didn't go anywhere but up, Dave Portnoy, founder Barstool Sports, decided to become a stock market investor. If you haven't watched his stock-picking shows, I can summarize them for you. He took a Scrabble game, smoosh the letters together to come up with a stock ticker, and whatever came out, he invested in it. He then declared himself as the Captain of Wall Street – replacing Warren Buffett. Who is a better investor – Dave Portnoy or Warren Buffett? Buffett has returned more than 19% annualized return, while Dave Portnoy has decided to return to his Pizza reviews. It's pretty clear who is a GOOD investor here. But what's different between the two men? Both are businessmen who have made successful companies in their own respective industries. I bet at some point in 2020, Portnoy's investment return had been higher than Buffett's. What's the real difference between these two? In this post, I reveal the most important difference between a Good and a Bad investor. And share steps you can follow to become a better investor like Buffett and less like Portnoy in stock-picking, not pizza reviews. Let's talk about that! I'm Hoda Mehr, founder, and CEO of Stock Card, and on this blog and its accompanying YouTube channel and Podcast show, I share detailed fundamental analyses and interesting investment stories.
This post is part of our educational series to help you hone your fundamental investing skills. Catch up with the other post on How to Invest Like Buffett? or how to Find the Highest-Returning Stocks? Remember, this content is for education and sharing ideas and not advice to buy or sell any securities. Sign up for a free account on Stock Card to get notified of these blog posts, YouTube videos, and Podcast shows every week. We only ask your name and email address when you sign up.  It's easy to assume the difference between a good investor and a bad one is in their portfolios. After all, we invest to make money, and a good investor is one who can make more money. That's true, but making money is the ultimate goal of investing. It's not the difference between the good and bad ones. Even the world's best investors have bad quarters and years. As I said at the beginning, Buffett has had an annualized return of 20% since 1965. However, it hasn't been a smooth ride. During these 57 years, in at least 10 years or 20% of the time, Buffett has a negative annual return. If you judged his quality as an investor in those years, you could have easily called him a Bad investor. So, portfolio return in one single year or quarter doesn't show how good an investor is. In the case of Buffett, we have 6 decades of investment history to gauge his performance. But what if you are looking at a YouTuber you want to follow or a friend who has had a streak of successful stock picks, and you don't have access to 57 years of his or her investment track record? How do you decide if you are following a good investor? How to Identify A Good InvestorAfter two decades of managing my family’s investments and almost 7 years of running Stock Card, partnering with 70+ YouTubers, interacting with almost 80K stock market investors, and reviewing more than 50K portfolios on Stock Card platform, I’ve learned one critical lesson about the difference between a good and a bad investor. A GREAT investor has a tested and reliable investment process. And he or she is constantly refining and improving the process. An investment process is a set of questions the investor answers and rules he follows for every investment decision. This investment process is personalized to every investor’s preferences, knowledge level, and time availability. For example, Warren Buffett's investment process is that he invests in great companies he understands at a fair price. He has a set of rules he uses to identify a great company and a fair price. He looks for an economic moat to find a great company. How he identifies economic moat is personal to Warren and his experience. To him, an economic moat is a business's ability to maintain competitive advantages over its competitors to protect its long-term profits and market share. Other GREAT investors have their own unique process. Howard Mark, billionaire and co-founder of Oaktree Capital Management's investment process is to identify quality companies in financial distress. In other words, he likes to invest in beaten-down companies with a high chance of recovering. If you read Buffett's annual letters to Berkshire Hathaway's shareholders or Howard Mark's frequent investment Memos, you see these GREAT investors consistently refine their process as they invest, make mistakes, and learn from them. The Importance of Having An Investment ProcessThe advantage of having a process is that it gives them the superpower to stay disciplined and not get swayed by the market's noise and their own emotions.
Take any great investor with a track record of success, and you will be able to find the process that powers their greatness. Understanding the power of the investment process has two major applications for you and me.
These days, the internet is full of people who share their thoughts and ideas online. Some are really good at making money-related entertaining content. There is nothing wrong with making finance entertaining. But that doesn't mean we have to listen to their advice or take their ideas seriously. When you come across a YouTuber or a famous investor, before listening to their ideas, ask yourself what's this person's investment process. Do you understand and agree with it? Even if that investor has had a bad year or two, the only way you can decide whether to follow and get new ideas from them is to assess the quality of the process. We Have An Announcement
I told you I learned about the power of the investment process through more than 2 decades of managing my family's investment, running Stock Card platform for 7 years, partnering with 70+ YouTubers, interacting with almost 80K stock market investors, and reviewing more than 50K portfolios on Stock Card platform.
Not only did I learn about the power of having an investment process, but I also learned about how great investors create and refine a process. And I want to share this knowledge with you. Today, we are launching a one-on-one coaching program at Stock Card, designed to help you develop your own investment process.
To learn more about the one-on-one coaching program, click on the bottom below. I look forward to seeing some of you who are serious about becoming a GREAT investor at your personalized session. I look forward to seeing some of you who are serious about becoming a GREAT investor at your personalized session. Three Steps To Create Your Investment ProcessStep one First, you have to decide about your goals for investing. For example, I was speaking with a fellow investor recently, and he told me he invested in the stock market for the thrill of it. He said, and I'm quoting him, "We like the game. It's the ultimate game, like chess. If you make the right moves and plot your strategy, you can make money." He is in the market for the thrill of it. He is okay if he loses money because he is playing, and in a game, you win some, and you lose some. With this goal, he can definitely pick stocks using Scrabble. Why not? It's exciting to see if Scrabble World Jumbles can make you money. Right? Others may want to make money in the market without researching too much. Automatic investing is the best process for someone like that. So start with your goals. And be honest with yourself. It's okay to want to have fun and not to have time to research stuff. Step two The second step is to define what types of investments (high-yield savings, stocks, funds, crypto, etc) meet your goals. No time to research? Index funds are better for you. If you want to double your money fast, you have to take calculated risks, of course, but you can't get there with a high-yield savings account as an example. I really like these steps. It is such a mind-opening exercise. If you realize to meet your goals, you have to take risks, but you are sitting on cash, you will see the gap in your investment. Step three Lastly, you need to develop a set of financial criteria and questions you must answer before making any investment decision. For example, if you aim to double your money fast, you must take more risks. Then, every time you invest, you must ask yourself, can you afford to lose all the money you are investing at that moment? Because you are taking more risks, you will inevitably invest in things without a guaranteed return. Asking yourself whether you are ready to lose the money and whether you can actually afford it makes your decision more informed, and if you lose the money, you won't be shocked. Another example is if you want to double your money fast, you must invest in a company with a realistic path to double its revenue, free cash flow, or profit fast. Therefore, you don't invest in a company with no revenue because there is no way to assess its ability to double anything except costs anytime soon, except if it gets lucky. Those are just a few examples, but you get the point. Your goals define your ideal investments, and your ideal investments give you a set of rules to follow. This makes your investment process, which guides every investment decision you make. It helps you avoid emotional decisions, regrets, and surprises. That's why it is super powerful. Final ThoughtsI have recently published another post about how to pick high-returning stocks that I use in my investment process. That episode shares the financial criteria and rules I follow to find high-returning stocks. That's a good next post after this one. Click here to continue to read ... I'll see you next time! Comments are closed.
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