5 Year Fooliversary
Wow, I thought I had more time. I knew that my 5 year Fooliversary was coming up. I knew that my 5 year anniversary as a member of the Fool would be momentous. I remember thinking earlier this year that I would spend several days in deep thought about what I learned and how I would share pearls of wisdom. I would explain how prescient I was, way back at the end of 2008, when it looked like we might actually go from a Great Recession into the Great Depression II, I thought that this was a once-in-a-lifetime opportunity to jump into the stock market and make some great deals. But I wasn’t sure where I could get the best advice.
I remember reading about Apple on the fool website at the end of the year. I didn’t have an iPhone yet, but my oldest son insisted that we buy an iPod for him. Sure I had seen many kids with iPods but this meant we would introduce a whole new technology platform into the household. We had a lot of technology but none of it was Apple. So I did some research on the company and its products. And there were some great (free) articles on the Fool.com that convinced me that Apple was a great investment, in addition to being a great technology company with great products. But I was still reluctant to pay for the Fool services and newsletters. So I decided that I would “test” them. I would buy Apple stock as well as a few other stocks that they recommended.
Apple grew quickly that year – the price almost doubled in about six months. My other stocks didn’t appreciate as much (some didn’t appreciate at all), but I was convinced that I should at least sign up for the Stock Advisor newsletter. I was hooked. I was afraid to say much in the beginning because I didn’t have a lot of investing knowledge or experience. I knew very little about options – except what my employer gave me – and I wasn’t about to “gamble” without knowing what I was doing. And I really didn’t have a lot of experience in traditional stocks. Sure, I had taken full advantage of ESOP (Employ Stock Ownership Plan).
But I only bought a few other stocks. And I admit I was lucky with some of them. The Google IPO, Exxon Mobil. So I started to read the latest Fool newsletters like clockwork. I read the discussion boards and posted periodically. And over the years I’ve learned a lot. I joined the Million Dollar Portfolio service and then learned enough to join the Pro and Options services. Great advice from both official TMF writers and so many contributors.
Here are my thoughts -
WHAT I'VE LEARNED FROM SO MANY GREAT INVESTORS HERE ON THE BOARDS AND THE FOOL NEWSLETTERS / SERVICES:
1) INVEST SO YOU CAN SLEEP AT NIGHT If you can stomach many stocks / positions in your portfolio and you can sleep at night and have time for other interests, then do it. As John Sargent, TMF1000 and many others have said, use the Fool newsletters AND the boards, especially the ticker guides, to glean key information about the stocks you care about. I have about 20 stocks with at least 3% of my stock investment money. I follow these companies closely. But I also invest in many other companies that I think could take off like a rocket. It only takes one rocket to make up for many duds or even complete losses. Since they are calculated investments that should pay off after many years, I try not to look at them too often. Sure I will make a move (i.e. sell or buy) if there’s a dramatic change to business such as scandal or accounting error.
But usually I follow a few (20) stocks closely whereas I only review the other 80+ stocks every quarter.
I try to determine if
- the investment thesis is still sound
- the opinion of the ticker guides AND CAPS ratings are positive (for the long-term)
If you cannot sleep at night because you feel overwhelmed, then work on paring your portfolio to a reasonable number.
2) LONG-TERM BUY & HOLD WORKS. Long-term buy and hold works very well. But long-term means years, not months or week! As you get more confident in the "long-term buy and hold" approach, and get to know the businesses that you're investing in, you will recognize when you should invest more in the winners. There are a lot of mispriced stocks. But sometimes the price is too high. Or the price is ok but the future for the stock is not good. So stick with the better companies. And as TMF1000 says, look for better and better value points to buy more of the great companies.
3) STOCK PRICES FLUCTUATE. A LOT. Stock prices fluctuate such that at any given time the price may be too high for the fundamentals. Over the last five years I have seen most companies drop quickly when there's a bad quarter, surprise announcement, or simply a market correction. That's a great time to buy. If you think the price is high right now, then you will probably get a chance to buy when there's a market correction or a bad quarter. But don't wait too long. You may never get the chance to buy great companies at reasonable prices. Sometimes you're better off buying in thirds so that you get an initial investment. If the price goes up, great, you made some money. If the price goes down, buy some more.
4) WHEN THE PRICE DROPS, DON'T REACT TOO QUICKLY When the price drops, the temptation is to sell what you've got because maybe the investment thesis is broken?? But if the company is truly great, they will recover. Especially after disappointing earnings announcements. The market overreacts quickly, and then the price recovers - slowly - to a higher price. We've seen this consistently with Netflix, Apple, even ISRG, etc. So you need to take some time to figure out if your investing thesis is broken. If not, don't sell.
5) PATIENCE! I've found that my best asset has been the lack of time to decide when to sell. So I use that to my advantage; I sell very slowly. I try to sell only when I think the prospects are bleak, or I just can't understand the company or the industry. This happened with several Chinese stocks. I know there are some great winners out there but I just don't have time and I don't understand the stocks or their markets well enough to hold them. So I sold most of them. That does not mean they're bad companies. It just means that those are the types of stocks that I am not holding for now.
6) INVEST IN WHAT YOU KNOW (OR WANT TO LEARN) Several people have recommended investing in what you know. And what you would like to know or like to follow. I think this is great advice. I have found several long-term winners this way. Sometimes they are Fool recommendations that I also like to follow closely. Under Armor, Lumber Liquidators, Netflix, Tesla, Apple, Amazon. These are all investments in companies that I like, that have a lot of customers, that are well managed, and are continuing to grow. And both the Fool newsletters and CAPS all-stars recommend them. Is there a better endorsement out there?
7) SET A GOAL FOR INVESTING. This will help you assess how much risk you can handle or need to assume to reach your goal. My original goal was to beat the S&P 500 by 5% every year. Average historical returns have been about 7% which means that I would get 12% returns per year on average. Using the rule of 72, my investments would double every 6 years. Back in 2009 I was hoping that I could retire at 65. If I could double my money every 6 years then I would have 8x my original investment by then! But I thought I was dreaming . . .
The irony is that I'm actually doing better than that so far. According to My Scorecard my returns are beating the S&P 500 by 20%! Of course it’s only been five years. And these have been some of the best five years of investing ever. Can you imagine if the economy really takes off?? On the other hand, what if the economy tanks again? That’s a topic for another day. Maybe I’ll write about that at my next major anniversary in ten years. Who knows? Maybe I’ll be retired by then. . . ;-)
Anyway, these lessons from the Fool newsletters and the community really work.