100 Ways to Beat the Market #2: Learn from the Super Rich

WHAT YOU CAN LEARN FROM TIGER 21, AN INVESTMENT CLUB FOR THE SUPER RICH

If you have $10 million dollars of investable assets, you may be able to join a super-exclusive investing club called Tiger 21. The group’s 140 members together have investable assets of more than $10 billion.

However, having money isn’t enough. You’ll also need to show that you built your fortune and that you have something to offer the group. Rich seat warmers need not apply.

Members meet once a month to discuss investment ideas and participate in discussions led by world-class experts. The heart of the monthly meeting – and arguably its most valuable component – is the portfolio defense.

During the portfolio defense, a member discloses and defends his portfolio holdings. He is then given candid feedback from other members. The defender also gets a tape recording of the session for further review.

Having to defend your portfolio to a group of highly-capable wealthy investors is characterized as daunting, stimulating and highly valuable.

We could all benefit from such an experience.

Many – if not most – investors continue to hold securities for fuzzy reasons. Perhaps a stock was purchased in a bout of exuberance and you have a nagging feeling there are flaws in your thesis. Perhaps you ventured outside of you circle of competence and made unfounded assumptions. Perhaps the stock was purchased by your last advisor and it’s there because you haven’t gotten around to selling it.

Start by taking Buffett’s simple advise and write down your investment thesis for each security. A couple of paragraphs should suffice if you really know why your holding it. This should include why its cheap or, if it’s fairly valued, why its intrinsic value will grow at a satisfactory rate.

If you can’t do it, you just flunked your own personal Tiger 21 portfolio defense for that holding, and you should seriously consider exiting the position.

You could also find a way to create your own feedback loop alla Tiger 21. The trick is finding knowledgeable investors or businesspeople who are willing and able to go through the process.

One simple idea is to publish your investing theses on investing web sites such as SeekingAlpha, Value Investors Club or GuruFocus and then defend your idea in the ensuing discussion.

With a little creativity and desire you can find a way to do this.

The bottom line is that we all have blind spots. We all fall victim to human frailty and cognitive biases. We all have gaps in our knowledge. The problem is that your portfolio may contain one or more, at worst, ticking time bombs and, at best, chronic underperformers that can be hazardous to your wealth.

After all, even Buffett needed a Charlie Munger.

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