👑 Penelope was the Queen of Saying NO. She was the wife of Odysseus, the Queen of Ithaca, and the daughter of Spartan king Icarious and Asterodia. Penelope is depicted in the cover image rejecting a man who has come bearing flowers.

Despite more than a hundred attempts to lure her, Queen Penelope was known for her fidelity, commitment, and loyalty to her husband. During his frequent absences, Penelope became adept at saying rejecting others. She would have made a great investor.

She was skilled in the art of saying NO and had the discipline to remain loyal and reject any advances, no matter how attractive. Her story is an incredible example from which investors can learn.

What you say NO to is just as important as what you say YES to.

It is easy to say yes and quickly deploy your limited capital, finding a place for your money. However, saying NO more often can lead to better results.

Let your NO be fast and your YES slow…

While my investment process and overall returns can be attributed to various resources, processes, and systems, nothing has been as impactful as swiftly rejecting ideas that clearly deserve a NO.

By slowing down my investment process and focusing on rejecting ideas more quickly, it frees up energy, time, and valuable resources to be dedicated to studying, researching, and analysing the most promising ideas for my fund.

☠️ Kill the idea quickly.

A sound investment process should include a robust idea-generation framework. Whether you use a variety of filtering and screening techniques, as we have discussed, or generate ideas from a “follow the leader” approach, many ideas will come your way.

The first stage of any investment process is to quickly exclude as many companies as possible. Try to avoid them based on your “Pre-Kill Checklist” of qualities you don’t want. It’s not about being overly picky and narrowing down to the decimal point on metrics, but rather efficiently excluding companies that don’t align with your criteria.

Looking for reasons not to include companies in your watchlist or portfolio can be a great way to protect yourself from choosing the wrong ones. However, some will still slip through.

I often hear many investors saying, “I should never have invested in XYZ” or “What a disaster placing my money in ABC.”

⁉️ Why did you?

Did you not have a process that could have prevented it from entering your portfolio altogether?

We all allow losing companies in from time to time, but this shouldn’t be a regular occurrence. Many investors allow companies that don’t align with their criteria and strategy, or shouldn’t even be in a portfolio to begin with.

💀 There is a lot of toxic waste floating around public markets. After spending a considerable time scanning various markets A-Z, I’d estimate that, in my view, more than half of the companies shouldn’t even be there. The point is to avoid these bad investments altogether.

Sometimes we deviate and become envious of other investors. We look over there into the AI realm and want returns, or we look over the horizon into junior exploration land and want what’s over there. Focusing on your strategy is often the hardest part. You should not covet another investor’s portfolio.

I’ve done it many times. I had a great strategy that was working, and then I loosened up my “saying NO” philosophy and ended up investing in things I shouldn’t have.

So what do you say NO to?

I have a list of areas, industries, metrics, and things I avoid when considering investments. This includes severe share dilution, excessive debt levels, a history of management abuse with unaligned incentives to shareholders, shell companies, pre-revenue companies, speculative pharmaceuticals, and companies with small gross margins or unhealthy valuations.

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The difference between successful people and really successful people is that really successful people say no to almost everything.

Warren Buffett

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While I may miss out on some potentially high-return opportunities, I prefer to steer clear of risky investments. Having gone through many stock exchange listings and analysed a lot of data, I can’t help but laugh at some of the offerings.

It’s important to say “no” to certain types of investments, especially those that you just know, to avoid. Speculating without experience or expertise in a particular industry is unwise.

Saying “no” isn’t just about avoiding negative appearances; it’s about carefully analysing data, reading between the lines, and evaluating potential long-term impacts. This involves considering negative PR, debt levels, management quality, and the potential for future turnaround.

What don’t you want to invest in?

Identifying what’s within your level of competence and understanding what you don’t want to invest in helps simplify the process of finding suitable investments.

If you know what you want to avoid, it makes it a little easier to find what you are truly looking for. Invert the idea. A lot of investors start with “I am looking for companies with this metric, this perfect round number, this MOAT, that return” all packaged into a nice little gift.

It rarely works like that. A process of elimination is often the best path to finding what you want.

💡 Some ideas will be overlooked…

The key is to be decisive and efficient in filtering out ideas. Although some potential opportunities might get missed, the majority of them belong in the reject pile.

By eliminating them early, you can focus on finding better investments, protecting your capital, and obtaining higher returns. When I first started, I used to see every opportunity without considering the fundamentals or criteria. While it’s true that some companies and ideas can turn around with new management or a breakthrough, most of the time, a dud remains a dud.

However, in the case of micro-cap and small-cap companies, I keep some duds on my watchlist even if they initially appear unpromising. I monitor their progress and assess their potential for success. It’s important to use judgment and allow some leeway in these cases. I consider companies that show potential, had potential, or have underlying value.

Conducting thorough due diligence helps to identify imposters even further.

When you come across companies that genuinely excite you, that’s the time to shortlist them and dive into detailed analysis.

I’ve never calculated the exact percentage of investments I reject, but it’s probably around 80%. What I have observed is that I continue to gather data on most of them. Upon revisiting past ideas and companies I turned down, I’ve noticed that most of them are either gone, delisted, or still trading at all-time lows.

📉 They remain stagnant.

Upon revisiting companies that I rejected, I often find declining metrics, shrinking revenue, increasing debt, and declining margins. It’s clear that they are heading towards failure.

This feedback loop is important to validate and improve decisions. If you notice a few duds that actually performed well, study them further. What caused you to overlook them?

Investing is an ongoing process of improvement and self-evaluation, aiming to refine the decision-making process and achieve better results.

🔑 The Key Takeaway

There is so much talk in the investing universe about buying: what to buy, how to buy, when to buy, and why. However, there is little discussion about when to say no, what not to buy, and why.

The longer you spend as an investor, the better you become at recognising poor investment ideas. It’s tricky to pinpoint exactly what a bad investment looks like, but you know it when you see it.

It’s remarkable when I study my watchlist of micro-caps and small-caps. While there will always be volatility in this segment of the market (brace yourselves), they seem less problematic compared to the list of bad investments.

By screening out low-quality options, you create a better pool of candidates, indicated by their collective movement.

Learn to say NO!

Don’t get carried away by the euphoria or Greed and Fear; stick to your criteria and plan, and reject anything that doesn’t align with them.

Be like Queen Penelope; resist the allure of the many enticing companies vying for your capital.

Most of the time, they don’t deserve it.