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Befriending the Fear

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February 04, 2016 – Comments (2) | RELATED TICKERS: BLL , AMZN , CTRP

Board: Saul's Investing Discussions

Author: othalan

In dedication to Saul and Neil whose posts spreading the voice of sanity helped me formulate this viewpoint:


Thinking on my the past month where I have dedicated myself to improving my skill in investing there is one lesson which stands out:

Make friends with fear!

In December 2015 I decided to seriously study investing. On the first trading day of 2016 I took the plunge and made my first trades designed to reallocate my portfolio based on what I had learned. Then I watched in horror as those same stocks plunged. Oh, what a mistake I thought I had made! But I held the course and continued to learn and invest.

A month later (3 February 2016), my portfolio is at 93.02% of its starting value at the beginning of the year. In that same time period, the S&P 500 is at 93.59% of its starting value and the Russell 2000 at 88.92% its starting value (which more accurately reflects my portfolio contents). This has me looking back at this first month of serious investing to see what I can learn.

The one trend in my own learning process which really stands out is: fear. Except that rather than be ruled by fear I looked it in the eye, shook hands and made friends. I spent time talking to the fear, listening to it and (ever so slowly) coming to understand it.

Fear was bombarding me from all sides. In the media, even good news is tinted with shades of fear. For every forum post I read with a positive view there were at least equal numbers fearful of oncoming doom. I looked at the falling value of my own portfolio and feared I had just thrown away my savings!  

I know from my experience traveling the world that doom and gloom are not upon us, the world is not about to end and fear is simply a signal to be cautious. As I sit here now I am very grateful for the fear besieging me this past month. That fear has become a good friend.

Fear of falling stock prices and lack of customer demand kept me from buying a large position in SWKS at the beginning of the year, giving me time to research the company in greater detail and make purchases at far better prices. Fear of fashion trends kept me from investing in SKX until I had carefully considered the risks and found a good entry point. Fear bred of ignorance kept me from investing in SEDG until I thought carefully about a recent 10% price drop and realized everyone else was fearful yet the company had nothing but positive news.

Thanks to fear, my position in those stocks are all up 1.2% - 6.5% since my purchase (and I see now SEDG is now up 12% in after-hours trading).

Fear had me take a close look at BLL, MIDD and BWLD which led me to decreasing my position size in all three. For now I am still invested in all three however I have better places for that money at the moment.

Fear still has me wary of CTRP, AMZN, LGIH and AMBA. I am invested in these companies and see good prospects in the future however fear has me hesitating. I don't see anything inherent in any of those companies to explain continued price drops however fear still voices a strong objection when I consider purchasing more. So I am listening to that fear, both my own and that of others; listening and learning.

As I consider those positions now, I realize I cannot loose. If the stock goes up, my fear of missing an opportunity has me invested sufficiently to benefit. If the stock goes down my fear of loss prevented me from loosing anything significant. As I listen to the fear around these companies, buy my own and that of others, I may use the falling price as an opportunity to purchase more shares. I cannot loose!

Thank You fear, for being such a good friend.

Thank You Saul and Neil, for being the voice of reason that gave me sufficient pause to pause and listen to that fear.

2 Comments – Post Your Own

#1) On February 04, 2016 at 3:29 PM, Arindam (< 20) wrote:

A month later (3 February 2016), my portfolio is at 93.02% of its starting value at the beginning of the year. In that same time period, the S&P 500 is at 93.59% of its starting value and the Russell 2000 at 88.92% its starting value (which more accurately reflects my portfolio contents).

With "friends" like that, who needs enemies? Do you really, really think that losing money is smart? Do you really, really think that "buying the top" is smart investing?

I closed two more shorts today after a one-week holding-period for an average gains of 10.1%. The Fear -- and complacency-- others are experiencing  is putting money in my pockets.

Yes, 'fear' can be an investor's best friend *provided* he/she is on the right side of it. That's the difference you don't understand.  

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#2) On February 04, 2016 at 5:07 PM, notyouagain (39.57) wrote:

I'd rather buy shares in companies with low payout ratios, high interest coverage, above average dividend growth rates, and view price declines as opportunities to buy more shares at higher dividend yields.

Who needs fear? 

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