Showing posts with label mr market. Show all posts
Showing posts with label mr market. Show all posts

Sunday, May 4, 2008

Investors can learn from my stupidity


What was one of those pithy comments that your mum used to make to you when you were growing up?

One of my mum's favourites was "if you don't learn from your mistakes you are doomed to repeat them in the future". To be fair, mum's phraseology contained some four letter words and was knowhere as concise or fluent, but she just might have had something there.

When it comes to investing in shares, my mistakes have taught me not to go there again, even though on occasion I may have made the same boo boo twice, and I thought I might share a few of my investing nightmares with you dear readers, in the hope that you may take something from them, file them away and use them for future reference.

I started investing in shares in 1997, my first purchase being Restaurant Brands [RBD] , the New Zealand fast food operator, the price per share was $NZ 2.20 and I bought 1000 shares.

I purchased initially because I loved KFC and thought the shares were "cheap". I feel dumber than dumb just reading that back.

Little did I know, the company had been performing badly for a number of reasons and I neglected to go further than the glossy prospectus for impartial information.

I bought around 60000 shares up until late 2002 and sold them all at the end of that year for a small profit, around $2000.00-not a good investment.

Two other things I learn't from that sojourn into fast food, don't fall in love with a stock and don't be afraid to cut and run if you know you might have made a clanger in the first place.

The second lesson I learn't, and probably the most cutting for me, is that you shouldn't get greedy, follow the herd mentality and plunge oneself into something one doesn't understand (Warren Buffett would spank you for that).

On Jan 25 2000, I bought shares in a "tech" company called Strathmore. I had no idea what they did who they were and whether they were making a profit. I just bought because I thought I should be in that sector,everyone else was buying, shares were going up and would continue to do so(duh!) and once again the shares were cheap.

I outlayed NZ$3900, plus $24.95 brokerage, for 6500 shares and I think they may have gone up to about 65c at their high. 13 October 2000 I sold 5000 odd at 18c and left the rest in some other company Strathmore had morphed into and lost the rest latter.

The herd mentality struck me again big time on Sept 11 2001. I remember I was in such a frenzy to sell, I spent the morning of the 12th here in New Zealand selling my whole portfolio. After around 1 hour I sold everything! A NZ$80000.00 portfolio gone at crazy prices. I didn't lose alot , if anything at all but current and future gains were erased, as we know that the market rebounded soundly months after that ill fated day.

September11/12 was a turning point for me of sorts, although I was to repeat my stupidity less than a year latter, when markets were nervous about greedy corporate "Gordon Gekko" types fiddling company books, when I sold a very large holding in Sky City Entertainment[SKC] because I thought markets were going to spiral down to nothing. They didn't.

So it has taken me around 5 years to get over my emotional ties to "Mr Market" and in that time I have realised that:

1: One shouldn't listen and act on others advice unless your own research backs up your investment criteria.

2: Greed can be good but is also bad when not practiced without emotion.

3: markets go up and down for no particular reason.

4: do not follow the herd under any circumstances unless you are smart enough to be at the front of the herd and remove yourself from the herd before the bull gores you.

5: do the opposite to everyone else.

6: Don't read the "funny pages" (a great quote from Warren Buffett and a reference to analyst/ brokerage reports and economic forecasters.)

7: Don't listen to the latest tips from friends (cyber or real life)

8: When the taxi driver, dinner party guests and party invitees all start talking about stocks, commodities,real estate or carbon trading as the thing to invest in. Don't.

9: A low share price doesn't make a company cheap. Bad management does.

10: Do your own research until your nose bleeds.

11: A hunch can often be wrong and infrequently right.

12: "Mr Market" and his bad moods can be profited from, but only short term.

13: Don't listen to me, only I know what I am doing.


The five years from 2002 have been far more rewarding financially-even including the current "credit crises" and while I have probably made some small mistakes since, my investment strategy has been honed by the years previous to 2002 and I now approach my investments with a sensible long-term view of my portfolio.

The companies I have invested in, not stocks, are assets which fluctuate daily in price and I will not sell unless there is a very good reason to do so or unless that schizophrenic "Mr Market" offers me a price for my share of a company that I just cant resist.

History is littered with the corpses of those that kept their eyes and ears closed when they were regaled with others past mistakes, but often one can learn more from the stupidity of others than the experience they have within themselves.

I hope my reflective stupidity helps.

My mum, and yours, was right.


Disclosure: I own SKC shares


Related Share Investor reading

Research,research,research
Fear & Greed are lovely things
Share Investor Friday free for all: Edition 8 -first story "It was 20 years ago tomorrow"
New Zealand Stockmarket Bull run: 2011





Recommended Amazon Reading

The Intelligent Investor: The Definitive Book on Value Investing. A    Book of Practical Counsel (Revised Edition)
The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition) by Benjamin Graham
Buy new: $14.95 / Used from: $6.99
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c Share Investor 2008

Thursday, January 24, 2008

Mr Market gets his Groove on

I have commented over the last week or so on the irrational selling of most of the stocks on global sharemarkets. Stocks have gotten cheaper and yet people still continue to dump good stocks for no other reason than because others have sold and presumably because they might be lonely so they join the flock.

I found this reasoning strange. Why would you sell a company that was providing a good financial return, cheaply simply because your neighbour was selling his?

Dumb right?!

I would have to answer yes and then add further elucidation regarding the "spectacular" 180 degree turn in the US markets Wednesday 23 and say that I find the US market rise and frenzied buying as even more bizarre than the selling frenzy of the weeks and days before.

Why would you buy today as stocks are going up in price, while you were selling yesterday as stock prices slumped?

What has actually changed in one day to turn the market around?

Nothing folks!!

The reason the Dow did an impression of a roller coaster was simply talk of a bailout of US sub prime bond insurers, nothing really material at all except on the negative side.

With this latest depression and irrational exuberance of global markets I am reminded instantly of Benjamin Graham's "Mr Market" parable:

Think of yourself as owning a share in a business in partners with others. One of your partners, say Mr Market, is somewhat of a neurotic who on any given day will offer to buy your share or sell you his at a specific price. His moods can fluctuate anywhere between incredible optimism and overwhelming depression. One day he will nominate a higher price to buy or sell, the next day he might increase it, lower it, or even appear uninterested in whether he buys or sells.

Ben Graham, The Intelligent Investor

The point that Graham makes is that Mr Market’s judgment is formed more by mood swings that by rational thought and that this gives the wise investor buying and selling opportunities. If Mr Market’s price is unreasonably high, then wise investors have the opportunity to sell. On the other hand, if it is unreasonably low, then they have the opportunity to buy.

Right now Mr Market is in a schizophrenic mood and his intentions are not necessarily to be trusted. The important thing is that a successful and careful investor makes her or his own decision, based on their own ideas of the worth of the investment.

I'm still amazed at the utter stupidity of some people who ignore what they have bought when they buy a share in a company. You are buying part or a business, that you own.

You don't buy and sell your business on a day to day basis otherwise you would drive yourself mental and you certainly don't sell it because there are outside negative influences (like the subprime mess and associated credit crunch) that are beyond your control and wont impact on the business to any large effect.

It is time to start thinking clearly before pushing that button.


Related Share Investor Reading

"Mr Market" gets his groove on
A sensible approach to global market volatility
Global Market's dropping and your portfolio
Research, research, research
Watch for dead cats bouncing

From Fishpond.co.nz - Buy Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up: What I've Learned About Surviving Tough Times

Toughen Up - Fishpond.co.nz


c
Share Investor 2008