To Our Partners of HIT Capital,
I hope this finds you healthy and happy. It has been a productive start to the year for HIT Capital. Our investment analysis technology, psychological research and fund performance have all moved in a positive direction.
HIT Capital started 2021 up 14.43%, which was at, and above our global benchmarks: International 8.61%, S&P 500 14.49% and the hedge fund index 8.81%. This brings HIT Capital’s compounded annual growth rate to 14% and total return since inception to 208%.
Psychology – Overconfidence Bias
Recently I became interested in learning about overconfidence bias due to the mindset adjustments coming from our new investment analysis platform. In short, overconfidence bias is the egotistical belief that we believe we are better than we actually are. It has been proved and defined in multiple studies in three distinct areas:
- overestimation of one’s actual performance
- overplacement of one’s performance relative to others
- overprecision in expressing unwarranted certainty in the accuracy of one’s beliefs.
Overconfidence isn’t a bias that is always bad, by learning and understanding it in yourself you can learn when to rein it in or let it loose. For example, when I was playing baseball I failed to get a hit more than 60% of the time. Not to worry, that was actually considered an all-star caliber performance. The overestimation of my actual performance allowed me to stay focused and positive.
On the flip side, overconfidence bias can have negative effects as well. For instance, expressing unwarranted certainty on complex topics leads to less than optimal decisions, ideals and even extremism. If I was overly certain on HIT Capital’s investment process it would be more difficult to adjust when the data points to a better way.
Research – Value Meshing with Momentum?
As a quick recap, we have now built a financial database, increased our investable universe, and started screening for deep value stocks. Going into 2021 I was overconfident that most if not all deep value stocks were out of favor and stagnant businesses. This is what academic studies, private research reports, and institutions had led me to believe. But as I dive deeper into specific value stocks my beliefs are adjusting. The combination of growth and extreme value actually exists. For example, two of our latest investments HAPP and SCPL rank extremely cheap in our value screener but have seen historical growth, and their leadership is planning for future growth.
Due to this learning we are currently working on incorporating a second and third step to the deep value screening process to find more stocks like SCPL and HAPP.
The USA was expensive at the start of the year and it is even more expensive now. The expensive market combined with our improvement in stock picking capabilities has led to an increased position in our value and momentum strategies.
In 2020 Sarah and I reached financial independence and while I didn’t quit ConocoPhillips immediately, I did take severance in March of 2021. It has been a multi- year goal to spend more time on HIT, friends and family and your support and guidance has been an integral part in us getting to where we are today. Thank you for making my family’s dreams come true.
Regulatory (No Change)
HIT Investments and HIT Capital are both still undergoing an audit by the Texas State Securities Board. I suspect the Coronavirus is still playing a role as we have not received an initial audit response from their surprise visit in late 2019.
I believe HIT Capital’s odds for outsized returns are increasing alongside the build out of our stock research platform. In response I have added $42,000 to my personal position over the past 6 months.
Thanks for your love, trust and friendship. Until next time have a safe, prosperous and joy filled 2021.
- Lichtenstein, Sarah; Fischhoff, Baruch; Phillips, Lawrence D. (1982). “Calibration of probabilities: The state of the art to 1980”. In Kahneman, Daniel; Slovic, Paul; Tversky, Amos (eds.). Judgment Under Uncertainty: Heuristics and Biases. Cambridge University Press. pp. 306–334. ISBN 978-0-521-28414-1.
- Moore, Don A.; Healy, Paul J. (2008). “The trouble with overconfidence”. Psychological Review. 115 (2): 502–517. CiteSeerX 10.1.1.335.2777. doi:10.1037/0033-295X.115.2.502. PMID 18426301. Archived from the original on 2014-11-06.
- ^ Moore, Don A.; Schatz, Derek (August 2017). “The three faces of overconfidence”. Social and Personality Psychology Compass. 11 (8): e12331. doi:10.1111/spc3.12331. ISSN 1751-9004.