Why Starting Small Can Make You a Better Investor

During their recent episode, Taylor, Carlisle, and Chris Mayer discussed Why Starting Small Can Make You a Better Investor. Here’s an excerpt from the episode:

[Chris] I mean, for me, I think, I mean, I, again, this is, there’s lots of ways to do this. So I’m not saying always the right way, but, you know, for me, I like to kind of start things small and get to know the business. And I always say, you know, it’s different when you actually own something versus then just following it.
I don’t know why. I just somehow, when you actually own something, you’re just much more in tune, you’re paying more attention, you work on it more, because you actually own it, as opposed to something that you’re following and saying you’re doing work on. It’s just different.

It’s a different level. So I feel like you know more about it when you own something for a year. And I like to keep it small, because then that, you know, stretch of time there is probably where you’ll make a mistake, it’s probably early.

And you might learn that a business isn’t quite as good as you thought a year in, it’ll be easier to get out of it. If it’s a smaller position, it won’t hurt as much and all that kind of stuff. Whether if you started really big, and then just stress level and everything is much higher, and it’s harder to pull out.

So this way, you start small, you kind of grow into it. And the way I also say with these things, if you just, if it’s real, you’ve got plenty of time, you know, you’ve got plenty of time. So you shouldn’t feel like you got to be rushed into something.

If it’s a really good business that you can own for 10 years, you could probably buy at the 52 week high this year, next year, the year after and still do very, very well. Not that you want, aim to do that, but it’ll probably work.

[Jake] I think that’s a really important point to highlight. And when you’re in year 15 of a bull market, like, and it’s always felt like you didn’t buy enough fast enough. Like, I don’t know if maybe not enough older people watching the show, but like, when you bought too early in 2007, eight, and it just kept going down and down.
And then eventually you’re like, I don’t have any more money to put to work. That was the opposite feeling. It was bad feeling, but in the opposite direction.

And it just hasn’t been that way in so long. I don’t, there’s like probably an entire generation that hasn’t experienced that.

[Chris] That’s right. That’s right. And then if you start small and that happens to you, then you can, it’s much more, at first off, it’s less painful, but then you can more readily kind of add to it, you know, as you’re kind of going down.
And so I feel like you get a lot more flexibility starting small and then whatever full position is for you, for me, I don’t know, somewhere around, you know, seven, 8%, I think. And then after that, I will just kind of let it ride. You know, I like to just sort of, you know, let the portfolio get unruly at that, at that point, you know, something compounds and takes over and becomes 12, 13% of the portfolio.

That’s good. That’s right. Yeah.

I don’t feel like I have to trim it or I have to manage it so carefully, you know. But everyone’s different about that. So, but that’s generally how I think about it.