“How to improve as a capital allocator”
1. Read. I believe to get better at anything you need to read. If you want to get better as a capital allocator start here:
a. The Intelligent Investor by Ben Graham
b. All the Buffett annual reports
c. All the Howard Marks’ letters
d. Margin of Safety by Seth Klarman
e. All of Chuck Akre’s letters
f. Nomad Investment Partnership letters
g. Poor Charlie’s Almanack
This will give you a basis on risk, value, expectation, margin of safety, and much more.
2. Study investments. You need to look at lots of investments. I have studied public markets, real estate development, commercial real estate, fixed income, and of course private companies. Read their financials, understand what makes for a good investment and what has caused some of the blow-ups.
3. Learn Accounting. Financial statements are the language of investing. You need to be able to read them efficiently and deeply. The only way I know to accomplish that is by having a very solid grasp of accounting.
4. Track Your Investments. I track every investment I make and save that track record for myself. I have been investing since I was 18 years old. That has given me full cycles to measure and over that time, I have found patterns. I am not a great individual stock investor. I wish I was! But the data says otherwise. I track the SP500 or do a little better/worse. That is not worth the amount of time necessary to invest intelligently in individual stocks. I have also found I do not enjoy real estate development. The returns are decent, but the amount of leverage needed to attain them makes no sense to me. I have done reasonably well in commercial real estate and extremely well in private companies. This is where I focus my time today. Tracking my results and being intellectually honest with myself allows me to focus my time and energy on where I perform best.
5. Do what you enjoy. Investing intelligently takes time. Find a niche where you can return above-average risk-adjusted returns and enjoy the search. Life is too short to be miserable trying to eke out a couple of percentage points above the SP500.