A Crucial Investing Tip From Bill Gates: Groupon Inc (GRPN), Netflix, Inc. (NFLX) and More

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GrouponJust what is this lesson? Gates writes:

Bill Gates’ annual letter covers a great many topics, from eradicating polio in Nigeria to improving K-12 education in the U.S., but does not touch on any hot stock tips. And why would it, with Gates more interested in investing in health and welfare than the next Apple Inc. (NASDAQ:AAPL)? But, if you boil down the key theme throughout the letter, it reveals a lesson that every investor should apply — but few currently do.

Take noteI have been struck again and again by how important measurement is to improving the human condition. You can achieve amazing progress if you set a clear goal and find a measure that will drive progress toward that goal. … This may seem pretty basic, but it is amazing to me how often it is not done and how hard it is to get right.

In terms of investing, the questions this brings up include:

  • Do you actually measure your investment performance?
  • Do you measure it versus a benchmark?
  • Do you track how well your sold securities perform after you ditch them?
  • Do you note why you bought something?
  • Do you note what factors will make you sell something?

Keeping track of the decisions that influence to your investing performance is the only way you can know what thoughts and actions led to mistakes and what led to success. If you don’t mark down the reasoning for each decision, you are likely to succumb to the multitude of biases that our brains love to use to make decisions simpler, no matter how wrong those decisions are. If you don’t track your investing, you are likely to wildly take actions in an already wild market, making it more of a gamble than it need be.

A personal example
In early March last year, I bought shares of Amazon.com, Inc. (NASDAQ:AMZN) around $180, convinced that their dominance in a multitude of products and services would power it past its then market value of about $80 billion. After the share price jumped to roughly $230 following Amazon’s first quarter of 2012, making the company worth over $100 billion, I sold the stock, but failed to note exactly why I sold it, beyond what I can remember about being frightened from its limitless P/E ratio.

Since then, Amazon’s share price has risen 16%, more than double the market’s return, and the company is valued at $120 billion. Beyond missing out on the market-beating return, I missed out on a chance to fully develop an investing lesson for myself by not noting exactly why I sold it. This opens me up to making the same mistake, and missing those higher investment returns again.

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