In the last piece I told you why I built a system instead of trusting my gut. This one is about the ideas inside that system. The handful of principles everything else is built on. None of them are complicated. That’s sort of the point.
1. Avoiding disasters beats catching winners
Most investors spend their energy hunting for the next big gainer. I spend most of mine making sure I don’t get destroyed. Here’s why: if you lose half your money, you need to double what’s left just to get back to even. A big loss doesn’t just hurt. It steals years of compounding you never get back. So the first job of my system isn’t to find the hottest stock. It’s to keep me from falling into holes that are hard to climb out of.
2. A rule you wrote when calm beats a decision you make when scared
Every important investing decision tends to arrive at the worst possible moment — when you’re frightened, or greedy, or certain. Those are exactly the moments your judgment is least reliable. So I make the decisions in advance, in writing, when I’m calm, and then I follow them. That’s the whole trick. It’s not glamorous. It just works.
3. Score every company the same way, every time
It’s easy to bend the rules for a company you’ve fallen for - to forgive a weakness because you like the story. So I don’t let myself. Every company gets put through the same set of questions and scored the same way, with no special treatment. The ones I’m emotionally attached to get held to exactly the same standard as the ones I’ve never heard of.
4. Pay attention to the weather
Individual stocks matter, but the overall climate of the market matters just as much. There are times to lean in and times to pull back and hold some cash. I keep a read on that broader environment, and when it turns stormy, the system tells me to get more cautious — before the damage is done, not after.
Holding cash on purpose, at the right time, is one of the most underrated moves in investing.
5. Do less, more deliberately
A lot of investing activity is just noise. Like trading because you’re bored, or anxious, or want to feel like you’re doing something. Every trade has a cost, and most of them don’t earn it back. So my system trades rarely and on purpose. Low turnover isn’t laziness. It’s discipline. When there’s nothing worth doing, the right move is to do nothing.
Why this adds up to “Zen”
Put those five together and you get a way of investing that’s calm by design. It doesn’t panic, doesn’t chase, doesn’t fall in love, and doesn’t trade for the sake of it. It just runs the same disciplined process through every kind of market — which, over time, is what separates the investors who keep their gains from the ones who give them back.
In the next piece I’ll get specific about what that process actually looks at — the five questions it asks about every single company it considers.
- Erik Conley
ZenInvestor.org