The goings-on, in terms of both economic fundamentals and stock price reactions, of the past 7 months have been career-enlightening. In order to make these times useful (for the next time), I have been scribbling down a few notes seeking to answer the question: what do we learn from all of this?
Here is what has made my list so far:
Here is what has made my list so far:
- Letâs go back 9 months. Nothing really looks good and I force a handful of position opens and additions. I had nothing better to do; this forcing has most undeniably turned out to be a mistake. There is never any reason to invest when it does not really make sense. Running concentration (i.e. concentrated portfolios) is very difficult and requires tremendous care. Lesson for the future - if thereâs nothing to do, sit on your hands, and stay in cash.
- Buy slowly. I heavily bought several stocks early on at $12 only to see them go to $9. This is a mistake. Let the situation play out over time, you may learn some new information and you can always buy more later (at better prices and with better conviction!)
- Quality counts. And this is where weâre at currently. Stick to quality and you will be rewarded. The junkier, the more the risk of disaster.
- Balance sheets count. I have a couple of stocks on the edge of bankruptcy â say no more.
- Over-allocation: I argue this has been the biggest mistake of all. Notice from Buffettâs old partnership letters that his âgeneralsâ only numbered 5 or 6 in total with positions in the 5-10% range. A small community bank that I currently own and do still believe in is, nevertheless, not a general, and allocating 5% of capital to it is nothing more than greed. If you have to play in the lesser quality world, it must be in the 2-3% region.
- When you make a decision, execute it. This has been oh-so-apparent during sell offs (and, I imagine, will also be repeated during the ultimate re-valuations, as well). When you decide to exit, exit; waiting a day or two has been very costly. Donât.
- Tax loss selling- donât be a slave to it. I would have been much better served selling a particular retailer I own above $4, and paying taxes, than hoping along for another 10 days.
- Do not go along (with your colleagues) until you really have the thesis down pat and it makes sense to you! I have a particular position in mind with this one; unfortunately, it is not a good company and I have fallen in love with its leader. The good news is that it is inappropriately low-priced currently (and reasonably well balance-sheeted), I understand the thesis in its entirety, and am holding with confidence. However, an over-allocation - and irresponsible buying on both the way up and down â did occur and all derived from not really understanding the thesis.
- Trust your eyes! This is what Peter Lynch was really saying; if your eyes tell you people like it AND the numbers are good, trust âem. If your eyes say no, listen to this, too.
- Ben Graham: the most money is lost chasing bad companies during good timesâŚin the future, must be more patient! From Henri Nouwen, waiting patiently in expectation is the foundation of the spiritual life (and value investing, my addition!)
- You cannot predict the stock market. If it makes sense, move. Donât wait for the next 20% up or down - you will make multiple errors in the long-run. But watch your allocation %âs, especially as your emotions influence them.
- Life matters most. Our sanity and our health remain the most important assets we have. Note that owning quality operations really helps preserve both.
