So inspiring, Francesco. Thanks a lot for sharing this piece with the community.
I have a question: what could have been done in order to avoid the anchoring bias that prevented you from increasing your position on SHOP?
I am really interested in brainstorming around this since you presented your Risk-Reward framework as more efficient than a simple DCF (aiming at identifying a static "fair value") because it should lead to deal way better with the anchoring bias (which is definitely true, don't get me wrong).
Don't you think that the identification of a "fair value" leads to anchoring bias especially on the sell side, while your Risk-Reward framework doesn't fully eliminate the anchoring bias on the entry/add-up side?
I would say the framework significantly mitigates anchoring but I just didn't listen to my own advice.
SHOP remained flat between May and early August, while other companies in my portfolio increased in value significantly, thus making the position much smaller compared to the initial entry at 5% (it became 3% or so). And since my goal was to allocate at least 5% to the stock, I consider my missed increase as a mistake.
But here's what happen when you face multiple biases at once: I felt some urgency during the rough day when VIX climbed to 60+, so I just turned everything off. I prefered to wait, I saw the $40 point still a bit distant (=anchoring), so I decided to wait (=timing), hoping for more red to come in the markets (=greed).
So inspiring, Francesco. Thanks a lot for sharing this piece with the community.
I have a question: what could have been done in order to avoid the anchoring bias that prevented you from increasing your position on SHOP?
I am really interested in brainstorming around this since you presented your Risk-Reward framework as more efficient than a simple DCF (aiming at identifying a static "fair value") because it should lead to deal way better with the anchoring bias (which is definitely true, don't get me wrong).
Don't you think that the identification of a "fair value" leads to anchoring bias especially on the sell side, while your Risk-Reward framework doesn't fully eliminate the anchoring bias on the entry/add-up side?
Keep doing the great job!
Thank you Giovanni, great question!
I would say the framework significantly mitigates anchoring but I just didn't listen to my own advice.
SHOP remained flat between May and early August, while other companies in my portfolio increased in value significantly, thus making the position much smaller compared to the initial entry at 5% (it became 3% or so). And since my goal was to allocate at least 5% to the stock, I consider my missed increase as a mistake.
But here's what happen when you face multiple biases at once: I felt some urgency during the rough day when VIX climbed to 60+, so I just turned everything off. I prefered to wait, I saw the $40 point still a bit distant (=anchoring), so I decided to wait (=timing), hoping for more red to come in the markets (=greed).