STREET DOGS

Extracts from a Mohnish Pabrai interview at SumZero: One of the big issues investors face is preconceived perspectives. When we look at a stock, what goes on in our brains when we encounter a company for the first time?

For the first 30, 60 seconds, or first couple of minutes? That has a huge impact on our financial wellbeing and how our portfolio does.

In the first few minutes, you’re making a decision on whether you’re going to take a pass at a company, or spend another 15 minutes on it. And at the end of that 15 minutes, you’re going to make another decision as to whether you’re going to take a pass or spend an hour or two, and so on.

No investor has enough time in the day, week or year to look at anything more than a small handful of businesses in some depth.

If we look at the US with its 3,500-something publicly traded businesses, an investment manager can really not drill down on more than a few dozen of them every year.

So they have to make a decision relatively quickly on which ones they are or are not going to focus on.

Commitment bias comes in once we start spending time on something; our brains play games with us.

One of the games our brain plays is that we feel entitled. “Hey, if I spent some time on it, I ought to make money on it.”

And that’s really not how investing works. I think it’s very important to be aware of commitment bias, and to be very aware that in the first two or three minutes that you’re looking at a company, that’s when you have to make the call.

It’s okay to let a winner go. It’s much more important not to let a loser stay.