The coziest spot is under the warm blanket of ideology. It offers easy answers to difficult problems. But, man, is it dangerous, especially in an adapting world. Great stuff happens at the intersection of “Confident enough to take a stand” and “Humble enough to admit when something I don’t want to be true is true.” Morgan Housel

Dear Partner:

Arquitos Capital Partners returned 5.5% net of fees and expenses in the second quarter of 2017, bringing the year to date return to 24.1%. Our annualized net return since the April 10, 2012 launch is 30.6%. Please see page five for more detailed performance information.

The quote above is from a great blog post, “What I Believe Most,” by Morgan Housel. The entire post is great. The most successful investors have a unique ability to combine confidence and humility. They have to have the confidence to make the decision to buy and sell a stock when their opinion differs from the collective wisdom of the crowd (i.e., the current share price), and they have to have the humility to realize that most of the time the crowd is right.

Getting that proper balance is very difficult, especially in times of market stress. It is even harder to consistently maintain the proper mental equilibrium for effective decision-making. This is why being self-aware and intellectually honest are the two most important traits to reduce risk. If your initial reaction to stress is to deflect rather than internalize, it is going to be tough to be objective with yourself.

I’d like to address the subject of risk in this letter. This is a topic that is a lot easier to talk about when you’ve racked up a few good quarters in a row! This also is probably the most important time to do so. Lessons tend to take hold better when you are receiving negative feedback from your poor decisions. Real risks grow when all seems well.

Let’s get this foundational question out of the way: What is risk? The answer is that risk is the probability of permanent capital loss.

The chance of the price of a stock going down and the chance of the performance of the portfolio going down is not risk. Rather, risk in this context is not being able to psychologically handle a short term decline. By short term I mean less than a few years. Ignore your monthly, quarterly, and even annual returns. Look at them over a three to five year period. Your life will improve.

See the rest of the letter below:

This content is exclusively for paying members. Access all of our top quality content by signing up below.

If you are subscribed and are having an account error, please clear cache and then cookies if that does not work email support@hiddenvaluestocks.com and we will get back to you as quick as humanly possible.

Register New Account

Choose your membership level

Choose Your Payment Method