When it comes to relationship problems, Dr. Phil has the answer. When it comes to investing, applying his advice for relationships might work too. Right now you might be wondering how Dr. Phil can improve investment performance. One might state, "he is not a Chartered Financial Analyst and probably doesn't even know what a cash flow statement looks like." You might also be asking what is wrong with this journalist.
If you find yourself making comments like that and asking those questions, you might be considered a "fault finder." For these individuals Dr. Phil's advice is priceless.
According to Dr. Phil, this fault finding behavior allows a toxic "bad spirit" to enter the relationship. Since we are investors, our relationship is with the investment process required to be successful in investing.
What this bad spirit will do is cause us to blame and criticize others. "I couldn't predict that. The federal reserve raised rates." You might even yell at your subordinate for your inability to concentrate during the day, "I said I wanted regular, not decaf coffee." Or, "It's not my fault for investing in the tech stocks in 2000, my advisor recommended it." You might even blame your spouse for encouraging you to buy a house in 2006 only to see its value cut in half.
These fault finding character traits will cause investment loss.
The solution to overcome faultfinding, as Dr. Phil recommends, is to be "brutally honest." Since our relationship is with the investment process required to be successful, we must be brutally honest if we are doing the work required to be successful in investing. As investing guru Mohnish Pabrai states, "before you buy stocks, understand the business."
If we are not familiar with the company we buy, it would be easy to blame and criticize management if the investment turns bad. Instead, we must be honest and ask if we have done our homework on the securities we buy. We must ask questions like, "do I know how much revenue the company generates?" We must study the past levels of revenue. We must understand the past growth rate of that revenue and estimate future growth rates.
We also must ask, "have I studied the past price the market has valued revenue?" Instead of being judgmental of the industry, be rational and ask if the price of that revenue is a bargain.
If you purchased Taser International in 2005 and lost 60% of your investment, study why you chose to pay 35 times revenue rather than blame your advisor. Do not become a faultfinder. Don't be jealous of those that made 6000% returns investing in Taser in 2003. Instead, understand how paying a low Price for Revenue allowed them to make a great return.
Stop being a faultfinder and quit blaming others for the research you have not conducted. As Mohnish says, "make your own decisions, and before you buy stocks understand the business."
Thank you to Dr. Phil for sound relationship advice. Thank you to Gurufocus for providing the interactive charts that allow us to overcome faultfinding.
