Broyhill Letter Highlights IX: Trust The Process

This is the ninth piece in our Broyhill Letter Highlight series, highlighting our thoughts on process over the years.  You can access other posts in the series here.

For those who would like to revisit our letters in full, we will also be gradually sharing them to our Research Studio throughout the series.

IX: Trust The Process

We have no control over the timing of our results or those of market indices. We can, however, exercise control over the quality of our research process and our investment decisions. Only a focus on the inputs can determine the long-run success of the outputs.        

We can increase the odds of our success by training ourselves to think probabilistically. To make better decisions, we force ourselves to consider various futures. We work hard to hold multiple contradicting scenarios in our minds simultaneously. We examine past decisions, not to differentiate right from wrong, but to evaluate and improve the process that led to those results.

Forecasting the future is not a prerequisite for successful value investing. So, we try to stay out of the forecasting game. This doesn’t mean we don’t have hunches, but it does mean that we don’t make investment decisions that are dependent upon those views proving correct. Fortunately, economic forecasting is not a necessary requirement for investment success. We don’t need to know where we are going. Just knowing where we’ve been is enough.

The odds of perfectly timing the bottom are incredibly low. And hoping for the perfect entry point that will only be known in hindsight, is pure speculation. Better to ensure we are positioned for the bottom in advance, rather than blindly guess when and where that may be.

An often-overlooked lesson is that you don’t have to wait for the market to bottom to make money buying cheap stocks. Waiting for the “perfect” entry point often results in being late—because perfect is only obvious in retrospect.

At Broyhill, our portfolios are built on a foundation of rigorous fundamental analysis, block by block, one idea at a time. We engage the process with patience. We accept uncertainty. And we recognize that good ideas can come from anywhere. We don’t know where the next idea will come from, and we don’t care. We are on an endless hunt for value, and when we find it, we buy. It’s that simple.

Being creative means that our idea-generation process is inherently organic. Our job as investors is to surround ourselves with good ideas and ensure that we slow down enough to recognize them when they show up.

In the absence of a crystal ball, the best we can do is make smart bets that we think maximize our odds of success.