Episode Summary: TIP736 – How the Best Investors Execute with Clay Finck

Podcast Information

• Title: We Study Billionaires - The Investor’s Podcast Network
• Host/Author: The Investor's Podcast Network
• Episode: TIP736: How the Best Investors Execute w/ Clay Finck
• Release Date: July 11, 2025
• Hosts: Stig Brodersen, Preston Pysh, William Green, Clay Finck, and Kyle Grieve

Introduction

In Episode TIP736, hosted by The Investor's Podcast Network, the discussion centers around "The Art of Execution" by Lee Freeman Shore. This episode delves into how top investors manage their portfolios post-investment, emphasizing that successful investing hinges more on execution than merely identifying the right stocks.

Freeman Shore's Research and Findings

Clay Finck introduces Lee Freeman Shore’s pivotal research conducted between June 2006 and October 2013, where Shore analyzed the trades of 45 of the world's top investors. Shore’s objective was to understand what differentiates successful investors from the rest, particularly focusing on their post-investment actions.

• Key Insight: Despite employing some of the brightest minds, Shore's "Best Ideas Fund" underperformed the market, with only 49% of investment ideas profiting and some top investors succeeding merely 30% of the time. This paradox highlighted that success in investing is less about being right and more about executing well.

Notable Quote:
Freeman Shore emphasizes, “Success in equity investing is all about execution, execution, execution.” (00:16:15)

Classification of Investors: Rabbits, Assassins, and Hunters

Shore categorizes investors into three distinct tribes based on their handling of losing positions:

1. Rabbits

   • Behavior: Freeze and hold onto losing stocks without proactive measures.
   • Outcome: Often face substantial losses, as exemplified by the Vike Communications case, where an investor lost 99%.
   • Notable Quote:
     “The rabbits often dug tunnels that were so deep they never saw the light of day again.” (00:12:34)

2. Assassins

   • Behavior: Quickly cut losses with precision.
   • Outcome: Successfully minimize losses and reallocate funds effectively.

3. Hunters

   • Behavior: Strategically add to losing positions when justified.
   • Outcome: Potentially turn losses into gains by increasing their stake in undervalued stocks.

Managing Losing Positions: Cognitive Biases and Mistakes

Shore identifies several cognitive biases that impede investors from effectively managing losing positions:

• Framing Bias (Anchoring Heuristic):
  Investors remain anchored to their initial investment thesis despite mounting evidence against it.
  Example: The Vike Communications investor persisted despite falling stock prices because the original narrative remained attractive.
  Notable Quote:
  “They always viewed the stock as attractive... the thesis is not broken, so the price will eventually turn around.” (00:10:22)

• Primacy Error:
  Early impressions disproportionately influence ongoing investment decisions.
  Example: The Vike investor's initial enthusiasm delayed recognizing the company's decline.

• Endowment Effect:
  Holding onto a stock because of the investment already made, making it hard to sell even when necessary.
  Example: Investors may refuse to sell Vike Communications until it’s almost worthless.

• Self-Attribution Bias:
  Blaming external factors for losses while taking credit for gains, hindering learning from mistakes.

Key Recommendation:
Always have a predefined plan for handling losing investments, such as selling a position if it drops by a certain percentage or adding to it if you believe in the long-term thesis.

Case Study: Vike Communications

The episode highlights Vike Communications as a quintessential example of poor execution:

• Purchase Details:

  • Bought at 2.1 pounds per share in October 2007, near its peak.
  • Continued to buy more as the price fell, holding the position for 2.5 years.

• Outcome:

  • Sold at 0.02 pounds in July 2010, resulting in a 99% loss.

Personal Anecdote:
Clay Finck shares a relatable story of losing 99% of his capital on his first investment at age 18, underscoring the emotional toll of such losses.

Managing Winning Positions: Avoiding Raider Mistakes and Embracing Connoisseurship

Shore also categorizes investors based on their management of winning stocks:

1. Raiders

   • Behavior: Sell winning stocks too early, securing small gains instead of allowing investments to grow.
   • Outcome: Miss out on substantial long-term profits.
     Notable Quote:
     “They are terrified of getting caught and losing everything.” (00:38:45)

2. Connoisseurs

   • Behavior: Hold onto winning stocks, allowing them to compound significantly over time.
   • Outcome: Achieve exceptional returns by allowing the "winners" to run much longer.
     Notable Quote:
     “Their secret sauce was that when they did find the occasional winner, they won big.” (00:40:10)

Five-Point Winner’s Checklist

Freeman Shore concludes his insights with a Five-Point Checklist for successful execution:

1. Focus on Your Best Ideas Only
   Invest more in top ideas rather than diversifying excessively.

2. Position Size Matters
   Properly size investments to maximize the potential of winning ideas.

3. Be Greedy
   Allow winners to run and embrace the potential for exponential gains.
   Quote:
   “Any approach that does not embrace the possibility of winning big is doomed.” (00:60:15)

4. Materially Adapt When Losing
   Either sell losing positions or significantly add to them to change the investment outcome.

5. Only Invest in Liquid Stocks
   Ensure investments can be easily bought or sold to execute strategies effectively.

Conclusion and Final Thoughts

Clay Finck wraps up the episode by reiterating the paramount importance of execution in investing. He emphasizes that while finding the right stocks is crucial, the way investors manage these positions—whether in loss or profit—ultimately determines their success. Through disciplined strategies, awareness of cognitive biases, and adhering to a well-thought-out plan, investors can significantly enhance their chances of achieving superior returns.

Final Quote:
“The gains from the big winners far outweighed the losses from the losers.” (01:10:20)

Additional Resources

• Book Mentioned: The Art of Execution by Lee Freeman Shore
• Related Series:
  • Richer Wiser Happier hosted by William Green
  • Bitcoin Fundamentals hosted by Preston Pysh

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