In this article we'd like to share a useful investing tool with you guys. The tool we'll write about is the investing journal. We'll explain in this article how and why you should write an investing journal, and in the end we'll show you an excerpt of our own investing journal, which helped us get a good profit in our portfolio. But first let's explain what an investing journal really is.

What is an investing journal

An investing journal is a journal that is used to write down facts, ideas and thoughts that you have made yourself prior to an investment. The format of an investment journal might be a notepad or a document on your phone of PC. It doesn't matter how it looks like, but the important thing is that you actually write one.

What do I write in the investing journal?

We mainly use the journal to document and remember our thoughts before we buy and sell shares. Before we buy a share we do a lot of research and study each case. We read the annual reports a few or many years back in time, try to get a picture of the competitive environment the business works in, and which competitive advantages it has, and if they are durable. We also try to figure out what the business will earn for us in the future. In our experience the knowledge that we accumulate before a stock purchase is of best quality when it is new, because we might forget things later. That's why it's so important to write down our thoughts and facts about the investment in the investment journal.

As an investor you typically own a piece of a company over a longer period. Therefore it might be a good idea to review your companies regularly. Has something fundamentally changed since the last time you analyzed the company? Has the future prospect of the business changed, or has the competition gotten stronger? Has the moat widened or gotten smaller? It could be a good time to do this exercise when the companies release their annual or quarterly reports. Facts and knowledge that you gain along the way may also be good points to update your journal with.

Why should I write an investing journal?

The main reason for writing an investing journal is to try to become a better investor. The best investor is not the fastest or the most intelligent, but the one who keeps learning, and who changes his opinion if the facts presented to him have changed. As an investor you should be able to adapt to a world that is constantly changing. By writing an investment journal you can always look back at what you own and why you own it. As time passes you can look back at your notes and see if you actually understood the investment and company properly and if your estimates were sound. In this way you learn to understand both the company and yourself even better.

Another important trait of an investor is the ability to learn from your own mistakes. The investing legend Charlie Munger has said the following: "I like people admitting they were complete stupid horses' asses. I know I'll perform better if I rub my nose in my mistakes. This is a wonderful trick to learn."

To admit errors, and also to understand what actually went wrong, is not an easy task. It can also be quite uncomfortable to rub your nose in the mistakes of your own. But it can be a huge opportunity to learn. If you understand your mistakes and know which were made you might learn and not do that mistake another time. What went wrong? What did I miss? The best thing would be to learn from other peoples mistakes, but is often easier to remember well and learn from them when you can feel the pain yourself.

Another reason that you should write an investing journal is that it will help you to do more rational decisions. In the investment journal you might have written about facts and estimates about what the company might earn in the future. This information is very valuable to have and estimated beforehand, especially when the market is tumbling. Let's look at an example back in March 2020, when the whole market in Scandinavia dropped by about 50%. The news were pessimistic, and the feeling of fear was widespread among investors. Since the market has a tendency to overreact, it's is extra valuable to be able to look back to your investment journal at such times. That will give you a more firm holding point to make rational decisions based upon facts and research, instead of actions based on current fear. Remember, it is when the market is the most pessimistic that the risk of loss is the lowest!

Below you will see an excerpt of our own private investing journal, from when we researched the Swedish company Nilörngruppen.

Excerpt from our private investing journal of Nilörngruppen

*** Journal entry ***

We've decided to purchase shares of Nilörngruppen summer 2020 at a price per share of about 29 SEK.

• We're going to increase our holding up to 6.000 shares. Average price about 29 SEK, which gives a market cap of about 335 million SEK.
• The company has regularly paid a dividend of about 2.5 to 4 SEK the last years
• It seems the company's management has the debt under control, and it's not too high to make it too risky to invest.
• The CEO also seems to have things in order and manage the company well. He has previously held the role as the CFO before he recently became CEO.
• The company's debt has increased in 2019 because they invested in office properties in Sweden and the UK.
• In 2019 and so far in 2020 the company has had lower profit margins, which we should continue to watch carefully. It could be due to increased sales of products with lower margins, or due to higher competition.
• If the company earns about 40 million per year, we'll get an earnings yield of about 12% on our current purchase price. 
• The company pays out about 60-90% in dividend.
• We believe that there will be more sales within packaging in the future. RFID labels could also be more relevant if stores will use larger warehouses in the future.
• The company is well ahead when it comes to sustainability. We believe that will give them an edge when it comes to the competition. Sustainability is a global trend to watch. 
• The company aims for a 7% yearly growth of earnings. 
• If the company would return back to normal earnings, it would be delivering about 5-6 SEK profit per share. This amounts to about 15-20% of the current market cap. And it would give us about 12% in dividend yield.
• We believe the normal earnings and business as usual would be priced in the market around a P/E of 14. That would give a market cap of about 900 million, and about a 3x of today's market price. 
• We think we will own this stock long term and be patient. But we will monitor the earnings margin and its competitive position closely.

*** end of journal ***