Dr. Ajibola Awolowo
One of the privileges of being a parent is the ability to re-live your childhood through the life of your child. Don’t get me wrong. It is important that they have their own experiences but, as a parent, you can share experiences that positively impacted your childhood with them.
I was having a chat with my 6-year-old daughter and asked if she had watched the animation called “The Lion King” to which she answered in the negative. I was shocked. How can your childhood ever be complete if you haven’t watched that cartoon. We ended up having a daddy-daughter time together watching it and she loved it. I now live with the consequence of her indoctrination into the Lion King way by her roaring all over the house saying she is Simba.
It was nostalgic for me to watch the animation again after so many years. Each scene brought back memories. I could remember many of the movie lines as I had memorised a lot of them having seen the cartoon too many times. The conversation I found most enlightening this time around was that between Rafiki (the baboon) and Simba. Simba did not want to face his past as it was too traumatic for him. Rafiki went on to teach him a painful lesson that you can either choose to run from or learn from your past.
This theme of learning from the past rather than ignoring it couldn’t have come at a better time for me. As 2023 is enveloped by 2024, what pain have we experienced in our personal and investing lives that we should be learning from rather than ignoring? A Yoruba proverb says when a child falls, he looks forwards but when an adult falls, he looks backwards (to see what tripped him up and hopefully learn from it).
Many investors find it too painful to critically appraise their performances over time. The pain of seeing what they bought in error, sold too early or too late or what they should have bought but didn’t is unbearable. They therefore miss a golden opportunity to learn and improve their practice going forwards. History does not repeat itself but it surely does rhyme. If you don’t learn from your mistakes, you are bound to repeat them.
Personally, at the end of each calendar year, I print off all my buy/ sell transactions in the year, analyse them to identify my mistakes and make attempts to avoid repeating them. In 2021, I watched as the quarterly reports from Vitafoam PLC went from being average to fantastic. The signs were all there for me to see but I somehow could not bring myself to buy a stake in the company. Their sterling performance looked like a flash in the pan and I was certain the improvement will be short lived. The share price shot up from N5 thereabout to over N20. Eventually, when it became apparent that I was wrong, I was too anchored on the initial price opportunity I missed that I could not bring myself to pay a higher price.
That was a painful lesson. I learnt that, rather than waiting for all the lights to be green before moving, investing is sometimes a leap of faith. Faith in your process. There is no perfect company out there and if you find one that meets 9 out of your 10 criteria, buy it without remorse!
Fast forward to 2023, National Aviation Handling Company (NAHCO) started showing the same signs I saw in Vitafoam. Improved pricing power, quarterly results moving from average to excellent, healthy margins and a knowledgeable management team in place. This time around, I didn’t hesitate and bought as much as I could. I have since made over 200% profit in that one transaction alone (inclusive of dividends). I learnt from my mistakes and acted in a way that ensured I did not repeat them. This wouldn’t have been possible without me critically appraising my past actions and mistakes.
I just looked through my transactions for 2023 and my most obvious mistake was rushing into a company without doing all the work required of me. I got myself excited about the brewing industry and jumped into the deep end of the pool by opening a 3% portfolio position in International breweries.
The second I hit the “BUY” button, I knew I had made a mistake. I hadn’t followed my process before buying. When I brought myself to assess that company through the lens of my process, it was obvious the company did not meet my criteria and I sold the position a few days later. This experience taught me that I was still very much subject to my emotions. I am human after all.
IDENTIFYING YOUR MISTAKES
The first step to learning from your mistakes is to identify your mistakes. If you allow yourself to think you are perfect and flawless, you immediately put yourself in the defensive and put a blindfold over your eyes which stops you from seeing areas where you can improve your practice.
I am an advocate for having a system or process to your investing. No one should approach investing with the mind set of going with the flow. Whether you are an investor, trader or speculator, you should have well defined steps you take which leads you from company identification to purchase or sale. If you lack this, you put yourself at the mercy of Mr. Market.
A mistake is made whenever you neglect your process or you take an action that differs from what is stipulated by your process. Mistakes are not determined by the outcome of an action rather by the presence of faulty thinking that went on before the taking of an action or inaction. This means that you may make some profit from a mistake. Not all mistakes lead to losses. Do not be blinded by the seeming good outcome of a decision that was not backed by your process. The end does not justify the means. If you deviated from your process, you made a mistake. Whether the outcome of the said deviation was positive or negative, it doesn’t change the fact that you made a mistake.
When you decide if an action is a mistake only by the outcome, you miss seeing the action as a mistake when the outcome is favourable. The danger in this is that it boldens you to continue undermining your process in the pursuit of positive outcomes. This can continue until you totally neglect your process and start investing on a whim.
Investing is a brutal game and there are countless number of forces and emotions that tend to pull one in different directions. The main thing that keeps one grounded and focused is your pre-determined process. Anything that takes you away from your process is the enemy. Resist it with fervent passion. Even if it is the allure of making a quick profit. You might see it as only a quick gamble but neglecting to follow your process, even for a split second, reinforces the wrong lessons and gradually chips away at your belief and trust in your process particularly when you have made a profit in doing so.
In conclusion, making mistakes is what makes us human. Perfection is impossible, we can only strive for it. Even the gods of investing that have been in practice for well over half a century (Warren Buffett and late Charlie Munger) have said that they are only right 1 in 3 times. The person who is not making any mistake is not learning anything new.
You can either welcome the idea of making new mistakes and learning from them or let yourself become paralysed by the fear of making mistakes. Remember, a deer that freezes in the beam of a car headlights becomes roadkill.
As we start a new year, I challenge you to be bold. Venture cautiously into new vistas. Welcome the idea of making new mistakes but more importantly, recognise them and learn from them. The more new mistakes you make, identify and correct, the more refined, improved and sacrosanct you make your process.
Happy New Year.
Dr Ajibola Awolowo is the Host of Value Nigeria Podcast. He can be reached via the following:
X: @awothe1st
Valuenigeriawithajibola@yahoo.com