Biases That Might Cost You Big Returns (And How to Fix them)
The Real Challenge in Investing: Figuring Out What Actually Matters
Introduction
Mental biases are often discussed in investing literature, but there’s one that doesn’t get enough attention—and I believe it’s one of the most powerful.
It’s the bias of labeling yourself as a specific type of investor. It’s about the self-image you create for yourself and the image you project to fellow investors. This bias severely limits your opportunity set and can prevent you from spotting great opportunities. It also hinders you from seizing certain investments because they conflict with the identity you’ve built, which can be detrimental to long-term success.
Even legends aren’t immune. Warren Buffett and Charlie Munger once admitted that they passed on investing in Google (despite seeing how powerful it was when they used it to promote Geico’s gecko). Why? Tech stocks didn’t fit the “Buffett brand.” Turns out, clinging to an investing identity can cost you more than just credibility—it can cost you returns.
Probably one of my greatest assets over the last 30 years is that I'm open-minded and I can change my mind very quickly.
—Stanley Druckenmiller
In this article, I’ll break down why this trap is so dangerous and how it can hold you back from achieving lasting success.
This is the first part of a two-part article. In the second part, I’ll explore two often overlooked investment concepts. The first is the role of time horizons in investing—something that is rarely discussed but carries huge implications. The second, in my view, is widely misunderstood: competitive advantages, or moats. But before we get into that, let’s first tackle that mental bias.
So subscribe and don’t miss out the second part.
The Value Investor Who Missed the Party
A couple of months ago, I met with an old friend while he was visiting Shanghai - don’t worry I don’t point you out but you know who you are! I invited him over for coffee. As we sipped our espressos, he leaned back and declared, like a knight announcing his allegiance to a medieval kingdom:
I’m a value investor!
If you need a visual representation of my living room during our coffee chat, picture this.
I have nothing against value investing— I like to buy cheap stocks too—but the phrase is about as meaningful as a horoscope. “I’m a year of the Dragon investor!” would’ve been equally enlightening.
Here’s the twist: My friend isn’t some amateur. He is incredibly smart. Long before NVIDIA became a hot topic and everyone started talking about it, he had already done his analysis. He told me in detail how he reverse-engineered OpenAI’s entire supply chain—how he figured out that all roads lead back to NVIDIA’s GPUs. He had even predicted the AI boom’s insatiable hunger for their hardware. But when it came time to pull the trigger, his self-imposed value investor label screamed:
NVIDIA’s P/E ratio is 50! ABORT MISSION!
So he skipped the stock. NVIDIA then rallied 1,000%. He outsmarted the market’s complexity but got outsmarted by his own ego.
What Even Is a Value Investor?
Okay, I get it—people generally use value investing to mean buying stocks at low multiples, while growth investing refers to buying high-multiple stocks with fast-growing revenues. Throw in some margin of safety, intrinsic value and whatever else, and that’s the standard definition. But in practice, these definitions are utterly useless.
I don’t call myself a value investor, a growth investor, or anything else. If anything, I’d call myself an I like to make money investor—or, to invert it using Walter Schloss’s words, I hate losing money type of investor. If a great opportunity comes along, I couldn’t care less whether someone would classify it as value or growth.
That’s the problem with rigid labels. They box you in, limit your thinking, and can seriously hurt your long-term performance.
The Contrarian Trap
Another label that is less than helpful? I’m a contrarian investor. It’s the battle cry of Alibaba bagholders who loaded up on shares above $200.
Being contrarian is not the smartest way to approach investing. If you make it your mission to be contrarian for the sake of it, you’re guaranteed to lose money. It’s like refusing to use an umbrella in a hurricane because everyone else is staying dry. The goal isn’t to be different—it’s to be right.
We should not derive joy from others agreeing or disagreeing with us. Instead, we should seek out thoughtful dissenters—people who challenge our logic. Why? Because when we just agree with each other, all we’re doing is inflating each other’s egos. But when we disagree, we force ourselves to defend our reasoning, confront our blind spots, or admit when we’re wrong. Ultimately, it’s not about being right—it’s about getting closer to the truth.
Learning always beats validation. So if you discuss with me bring on the heat. If you’re just here to nod along, save us both the time—I’ve got a mirror for that.
The best investment isn’t the one that stays contrarian forever—it’s the one the market eventually recognizes as great. Ideally, you buy when no one cares, and by the time you’re done buying, it’s the hottest thing in the world, with everyone scrambling for it like Black Friday shoppers at a TV sale.
That’s the sweet spot. That’s where money is made.
Opportunities are rare and unique
Great investment opportunities are rare—at least if you have a concentrated portfolio. So why limit yourself? Why use a rigid framework that prevents you from seizing these opportunities? Every situation is unique and demands its own analysis.
Here are some of the things I try to do to avoid falling victim to the labeling bias.
For each investment, I focus on up to three key factors that will actually move the stock. If I can’t identify them, it’s time to move on. But beyond that, every investment is different: the timeframe, the key variables, and the lens through which I analyze it.
Time horizon is an often-overlooked concept in investing. It completely shifts what’s important. Over longer time horizons, some factors become critical while others turn irrelevant. I’m going to write more about this in the next article, but for now, it’s important to remember that your holding period determines which variables matter.
If you’ve been chugging the Buffett-Munger Kool-Aid—sweet, refreshing, and packed with the promise of compounding—you’re probably all about quality management and return on capital. Sounds great! But before you take another sip, ask yourself: how long do you actually hold your stocks? If it’s forever, like Buffett, you’re good. But if your average holding period is about a year or so, let’s be real—you’re just kidding yourself. In that timeframe, management and return on invested capital barely matter. What actually moves the stock? Multiple expansion and market shifts.
For some investments, I focus on asset value and don’t care about growth. For others, I’m willing to pay what seems like a high multiple if I’m confident that future growth justifies it.
Sometimes, my research goes deep—really deep. I’ve gone through everything from a CEO’s childhood diary entries to decades of earnings calls and reports. Other times, it’s just one quick news snippet, a single fact verified, and that’s enough. It was painfully obvious, but the market hadn’t caught on. That was all I needed.
Every situation is different. Competitive advantages (moats) might be crucial for one stock but meaningless for another. A big insider owner might be a great sign in one market—but in Hong Kong? More often than not, I see it as a red flag.
All I’m saying is, stay clear of people who try to tell you there are fixed variables that always matter. Sure, it might be true for them, but that’s just them limiting themselves from the get-go. They’re effectively always investing in the same situations, which is fine if that’s their strategy—but it’s not the only way.
And honestly, that’s part of the fun of investing, right? The joy of figuring out what really matters—because it’s never exactly the same twice. Don’t limit your thinking or prevent yourself from adapting to new opportunities. Give yourself the freedom to invest wherever the opportunity is—whether others call it value, growth, contrarian, or something else entirely. This flexibility is crucial. At different times, the market will offer only certain types of opportunities, and you want to be ready, not limited by labels that don’t fit.
I don't see that it makes any point that someone in the Swedish Academy decides that this work is noble enough to receive a prize — I've already got the prize. The prize is the pleasure of finding the thing out.
— Richard Feynman
Me the Chinese tech investor!
The other day, someone labeled me a Chinese tech investor, which I found quite amusing. It’s always interesting to learn something new about yourself—so here I am, the Chinese tech investor. Back in 2021, I called people insane for buying into Chinese tech stocks just after the government announced investigations into those companies. I remember all these talking heads on YouTube calling it a lifetime opportunity or a contrarian play. Well, as I’ve written before, when the pendulum swings back and the government starts investigating a sector, it’s time to take cover. It’s not the time to think that the multiple contracted slightly and, voilà, there’s your opportunity.
As a matter of fact, most of the companies I own today, I considered uninvestable only a couple of years ago. Where I see opportunity now might be completely different from where I’ll see it a couple of years from now.
My holding period isn’t forever, and I find that too limiting for my investment style. It leaves you with just a handful of very stable and predictable companies, essentially excluding everything else.
In the rest of this article, I’ll explore why Buffett’s “forever” holding period makes sense for him and his situation, but why it could actually hurt other investors in the long run.