Pieter Slegers — The Psychology of Investing
Owner versus Speculator, and the machinery that keeps you on the right side of the line: a written thesis before the purchase, three pre-agreed sell reasons, and a 48-hour rule.
One-line take: the behavioural companion to the month's drawdown letters, and the one that supplies the actual rules. The organising distinction is Owner versus Speculator — an Owner ignores price and watches cash flow and growth; a Speculator does the reverse — with the family-grocery thought experiment as the test: if you never intend to sell, only "how much you're making every single year" and "the future growth prospects" can matter, and caring about today's quoted value is the Greater Fool Theory in disguise. From that follow three decision rules: write the thesis down before buying (what the company does, why it is undervalued, what growth you expect), pre-agree the sell conditions — an owner sells only if fundamentals have permanently shifted, if the price "defies all logic," or if there is a significantly better use of the capital — and classify every fall as a price drop or a fundamental problem before acting. Then six habits: check the business not the ticker, the 48-hour rule ("if you feel the urge to act, wait 48 hours"), position sizing ("never let one stock become so large that daily price movements keep you awake at night"), a decade-long horizon, turning off financial news ("designed to make you act (and earn ad revenue)… read less news and more annual reports"), and a decision journal recording how you felt as well as what you did. The metric that replaces the share price is Owner's Earnings (EPS growth + dividend yield), disclosed here as compounding at 19.7% a year over ten years for the portfolio. The closing line is the month in one sentence: "The stock market is the only place in the world where people run out of the store when there is a 30% off sale."
1. The rules, as stated
No stock table: the post names no company with a view. Apple appears once, purely as arithmetic ("You buy 10 shares of Apple? This means you think the company is worth more than $3.7 trillion"), and is not archived as a mention. What the piece does produce is a set of named rules and biases, tabulated here.
| # | Rule / concept | What it says, in his words |
|---|
| 1 | Owner vs Speculator | Owners "don't care much about fluctuations in the stock price" and "care about the cash flow and future growth prospects." Speculators are the exact inverse. "As a successful investor, you should think and act like an Owner." |
| 2 | The whole-business test | "If you buy a single stock of a company, you should be willing to buy the entire business." Buying ten Apple shares is a statement that the whole company is worth its market value to you. |
| 3 | The Greater Fool Theory | "You buy an asset at a high price. Not because you think it's actually worth that much… But because you're betting that someone else will pay even more for it later." Caring about today's quoted price when you never intend to sell is this, restated. |
| 4 | Owner's Earnings | "Owner's Earnings (Change in %) = EPS Growth + Dividend Yield." The replacement dashboard for the share price. Disclosed: "Over the past 10 years, Our Portfolio has grown its Owner's Earnings by 19.7% per year." |
| 5 | Write the thesis first | Before buying: "What does the company do? Why do I think the company is undervalued? Which growth rate do I expect in the years ahead?" — kept in an investment journal. |
| 6 | Three reasons to sell, agreed in advance | "The business fundamentals have permanently shifted… The stock has become so overvalued it defies all logic… You found a significantly better place to invest your capital." Decided before purchase, so the sale is not improvised. |
| 7 | Price drop or business problem? | "Mr. Market is manic-depressive… a falling stock price is just market noise most of the time. If you can buy a good business at a cheaper price, it's an opportunity. If something fundamentally changed, it's a business problem." |
| 8 | The 48-hour rule | "Never buy or sell in a hurry. If you feel the urge to act, wait 48 hours before making a decision." |
| 9 | Position sizing by sleep | "Even a great company can fail. Never let one stock become so large that daily price movements keep you awake at night." |
| 10 | Turn off the news | "Financial news is designed to make you act (and earn ad revenue). If you want to be a better investor, read less news and more annual reports." |
| 11 | Decision journal | "Write down why you bought a stock and how you felt" — the emotional record is the part that makes the review useful. |
| 12 | Doing nothing is a strategy | "In investing, effort doesn't equal results. When you own a business that grows its earnings 20% every year, the best move is to do nothing." |
Six biases are named up front and are worth keeping as a checklist: recency bias ("assuming recent trends will continue"), loss aversion ("a loss of $100 feels twice as painful as the satisfaction of a $100 gain"), confirmation bias, overconfidence bias, sunk cost fallacy ("continuing to hold… because of prior time or money spent") and mental accounting. The reusable versions are on the actionable insights page.
2. Talking points
Fear and greed, and the wiring that needs inverting
- "Both fear and greed makes you take irrational investment decisions. That's also why the best investors in the world are usually seen as 'cold'."
- The specific failure is symmetrical: "you tend to become overconfident when your stocks are doing well… and you tend to doubt yourself when things aren't going your way. You should mentally wire yourself to do exactly the opposite."
- Read against the March run, this is written to an audience that is currently doing the second half of that.
The family grocery store
- The thought experiment: a business handed down from grandfather to parents to you, which you intend to pass to your own children. Which of three things matters — today's valuation, this year's profit, or the growth ahead?
- "If you have no intention of selling the company, the only thing that should matter to you are points 2 and 3."
- The house analogy makes the same point about frequency: "You don't wonder every single day whether the value of your house has gone up or down."
The Speculator and the Owner, watching the same fall
- "The Speculator sees the stock price drop and panics. They think they've lost money. The Owner checks the shelves. Customers are still buying milk. The business is just as healthy as yesterday."
- The prerequisite is understanding: "when you don't understand a business, a falling stock price looks like a warning. It makes you think something is broken." Knowing what you own is what converts a scare into a sale price.
Three ways to keep emotion out of the decision
- Write the thesis before buying — three questions, kept in a journal; the Community runs a daily investment journal for this.
- Decide the sell conditions before buying — "this keeps you from making up excuses in the heat of the moment." The three permitted reasons are narrow and none of them is "the price fell."
- Classify the fall — noise or fundamentals, decided before acting rather than after.
Four arguments for the long horizon
- Time in the market: "the best days usually take place just after the worst days. Missing just a few of them can have a huge impact on your returns."
- Doing nothing: effort does not equal results when the business is compounding on its own.
- Think in decades: "Wall Street thinks in quarters. The best investors think in decades."
- Volatility is your friend — with Howard Marks' Selling Out memo cited for how hard that is to actually sit through.
The six habits
- Check the business, not the ticker · the 48-hour rule · position sizing that lets you sleep · a decade-long focus · turn off the news · keep a decision journal.
- All six are mechanical rather than analytical — the same design as the dollar-cost-averaging answer a week earlier: remove the decision rather than try to make it better under stress.
The closing frame
- "Investing isn't about being the smartest person in the room. It's about being the most rational and disciplined."
- "The stock market is the only place in the world where people run out of the store when there is a 30% off sale."
- "Speculators focus on what a stock might be worth tomorrow. Owners focus on what the business will earn over the next decade."
Summary derived from the archived Compounding Quality post (text in transcript.txt) for personal study. Not investment advice. © Compounding Quality / Pieter Slegers for source material.