Simon Handrahan's avatar

$19.8M follower assets

Trying to own the best businesses to allow compounding. Investor, not a trader. No macro view. Analyzing businesses. Check out www.pickilo.com and my newsletter at www.marginofsafetyinvesting.com.
Simon Handrahan's avatar
$19.8m follower assets
Uncertainty and a Probabilistic World
Investing in the stock market can be challenging, particularly in a world where the future is unknown, and the markets are constantly shifting. Nevertheless, there are ways to make informed decisions and manage risk even in such an unpredictable environment.

As Howard Marks has noted, "investing consists of exactly one thing: dealing with the future," and it's important to accept the fact that the future is never certain. Thus, a probabilistic mindset is essential when it comes to investing.
One way to develop a probabilistic mindset is by engaging in thought exercises. For example, consider the following scenario: You've invested in a company that you believe has a 60% chance of success, but you discover that a new competitor has emerged, reducing your confidence in your investment to 40%. Do you sell your shares or hold on?

This exercise demonstrates the importance of considering probabilities and being willing to adjust your beliefs and actions based on new information.

As Nassim Taleb, author of "The Black Swan” has said, "The problem with experts is that they do not know what they do not know, and don't care that they don't know it." Being willing to change your mind and adjust your investment strategy based on new information is essential in a probabilistic world.

Another key factor in investing is understanding risk. As economist Harry Markowitz has noted, "Risk means more things can happen than will happen." In other words, there are always unknown unknowns that can impact your investments, and it's important to manage risk through diversification and a well-defined investment strategy.

Cliff Asness emphasizes the importance of diversification, stating, "Diversification is the closest free lunch you can get in finance." By spreading your investments across different sectors and companies, you can reduce the impact of any single event or trend on your portfolio.

Ultimately, investing in the stock market requires making decisions under uncertainty and managing risk through a probabilistic mindset, diversification, and a well-defined investment strategy.

As Kahneman and Tversky have noted, "We are not comfortable thinking in terms of probabilities, and we often resist it, but the world is probabilistic, and we must become more comfortable with it."
@mos_capital Great post. One thing which does not change is human nature. People should study history more which will help them with accepting uncertainty and rationalising the probabilities in the future in the best way they can.
Portfolio changes
Today I sold out of $AZO - expensive end of its historic valuation thus lower impact of buybacks. Also better opportunities these days.

Trimmed $V - probably will do fine but again, there are better opportunities.

With proceeds, bought more $OTCM $BN and added new position in $BAM. All with strong management, good future fundamental growth and brookfield getting beaten up with association with financials and real estate.
Nice, I'm betting you did well on $AZO. Up 25% over the past year.

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$POOL long vs short term thoughts
Poolcorp $POOL will have a down year in 2023 when it comes to both new installs and remodels.

But if you are able to look further out, there is so much potential with a growing and aging base of pools coupled with more upscale and tech integration adding incremental revenues.

At the moment the price seems a bit optimistic given the shorter term headwinds so I’d be looking for an opportunity closer to 250-300$ range for a margin of safety should the recovery post 2023 take longer than expected.

I own a small position and have no intention in selling even though it seems a little overpriced at the moment. Long term, I like the business and I could very easily be wrong about the short term. Ideally I get an opportunity to add on price weakness on short term worries.
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Pool is high up on my watch list too.
N+1 = A Loaded Gun
I’ve been thinking of anti-fragility. The best management teams can add to their quality businesses by simply allowing for the next deal or reinvestment to be made.

Having a loaded gun ready for the zombie apocalypse may seem like suboptimal 99% of the time but it’s the only thing that will save you in times of crisis. In the good times, people will scoff at the under-leveraged and under-utilized cash piles.

Perhaps elephant hunting isn’t about finding an elephant; perhaps it’s simply having the discipline to have the ammo loaded when the elephant shows up.

I’ve butchered enough analogies for one day.
Very true, a case of hoping for the best but preparing for the worst.
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It’s different this time…
I don’t know if I’m distracted or what, but this 2023 short term rally doesn’t feel the same to me. My portfolio has performed incredibly well last month or so (same as most) and I don’t feel the typical dopamine and euphoria.

I wonder if my psychology is finally starting to react more appropriately in-line with my long term investment goals? I’ve really tried hard to think like a long term investor last few years but this is the first rally that I’ve almost felt bad due to the lowered forward returns.

Maybe I was expecting lower valuations for longer? Perhaps we will get a chance. Here’s to hoping.
Your shift in attitude makes total sense, @mos_capital! The more drawdowns we experience as longterm investors the more opportunity we have to practice and test our mindset. You say longterm thinking is new for you as of the past few years. If you've only experienced 1 or 2 big drops in your portfolio before the most recent, then with the most recent pullback you've practically doubled your experience!
New Microcap Idea: $AEP.V Atlas Engineered Products
Rolling up a mom and pop fragmented industry is founder led Atlas Engineered Products.

This is a very illiquid microcap traded on the TSX Venture exchange. Listed since ‘17 and operating since ‘99, this is a business that buys small roof truss manufacturers (regional businesses because of shipping) and drastically improves operations. With an average price of 4x ebitda, they are able to get great returns by focussing on profit and efficiency with sales and marketing to boot!

While certainly some short term headwinds, longer term the industry will have the wind at its back with a supply shortage of housing in Canada and immigration continuing to boost new demand.

There is currently an opportunity to also increase organic growth over the next decade with an industry that is short on labor - in comes increased investment and interest in other manufactured products ready for onsite assembly. Wall panels alone could easily double the average revenue per build when the industry inevitably shifts in this direction.

There’s also an NCIB in place till end of the year for 4.7 million shares (10% of float).

Currently trades at 6 P/E.

I own shares. Check it out and signup for more free content like this one.



This one has my interest. The acquisition strategy seems very similar to $MTN but it seems like AEP.V has many other advantages.
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$CNSWF Constellation KPIs
Constellation Software and its future success to me boils down to a few important indicators. Their performance can be evaluated by looking at a few leading (more important) and lagging (less important) indicators.

In my latest update, I’ve dived into these and elaborate on my thoughts on where the business stands today. Check it out and share!

Tabletrac $TBTC writeup (microcap)
My latest writeup is out and it’s a tiny founder led business with a high insider ownership and is founder led for the past 25 years!
Tabletrac sells casino management software and related products. Sticky recurring revenue for the maintenance segments and potential operating leverage incoming. Currently with net cash on the balance sheet and a 10x P/E.
Please note that I own shares and this is meant to be my current thoughts on the business and not financial advice to buy or sell.
Q3 2022 Portfolio Update
A short and sweet update on performance for the quarter and year to date. Not a lot of changes to the portfolio overall and returns flat for the quarter and down close to the market for the year. A few new ideas I’m researching (both big and small).

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