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We asked hedge funder Whitney Tilson, the founder and managing partner of T2 Partners, the best advice he would give to those who want to start investing.Here’s his response:
“I think my best advice is invest the time to learn the craft of investing before you go out and start doing it with meaningful amounts of your own money much less anyone else’s money. Having done this for 14 years professionally and been humbled many many times, it is very, very difficult to do investing well. It’s something that requires a lot of training and experience, so my advice don’t go out and do it with large amounts of money. As part of the learning process, go out with small amounts of money to start with. Put a few thousand bucks in an E*Trade account. The way I learned investing is by reading nonstop, going to every conference and reading every newsletter that I could about value investing. Then, I just started with some of my own money and you’ve got to do it with real money for it to be a real learning experience, but just recognise that in the early stages of the learning process, you’re going to make a lot of mistakes so make sure you’re doing it with small amounts of money.”
Speaking of making mistakes, we also asked Tilson to tell us one of the biggest mistakes he has made investing.
“Over the years, where I’ve lost the most money, is where I got outside my circle of competence and didn’t realise it. I convinced my self that I was the expert on a particular industry or company and it turns out that I was the sucker at the poker table. All other things being equal, it’s good to have a broad, a wide circle of competence so you can invest in a lot of different industries, a lot of different countries, etc., but it’s much more important, even if you have a small circle of competence, to just know what the boundaries are and never go near the boundary. So, I know guys who the only thing they do is invest in small cap bank stocks and that’s their circle of competence and that’s all they do, but they’re the world expert on small cap bank stocks. Whereas what I do is, I’m more of a generalist. So it’s easier when you’re a generalist and willing to look at a lot of different things to get into trouble.”