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CAPS investing lesson

Recs

8

September 22, 2013 – Comments (3)

Before I get to my lesson I have an idea for some entrepreneur out there to make money putting together an encyclopedia or dictionary of Buffet quotes and parables. I know Buffet has spoken about temperament being one of the most important factors affecting investor success and I seem to remember a quote about investor consistency but I don't have a clue where to find these for my little blog post today.

 In any case on to my story/ lesson. I got my start investing in individual stocks in the late 90's (like many). I actually didn't believe in the dot com's (selling stuff online) but got tired of watching everyone else making money. I heard about "Business to Business" or B2B companies and this sounding like something with a lot of potential. To make a long story short I bought a handful of companies in the space nearly doubled my money in a few months (if I sold) and then lost most of my money in the following year or so. The lesson I learned from this is that I better get a clue about what I'm investing in and why; if I want to keep investing in individual stocks.

I think it was 03 or 04 My father mentioned something about TMF Hidden Gems. I didn't even know it was a small cap only stock service until after I joined. I never kept track of my overall record using their rec's and had to drop out of the service during the great recession so the record is probably skewed anyway but what I came to love about the service much more than the actual recommendations was the in house message boards and the ability of a novice like myself to pick the brains of the analyst, staff and other knowledgeable members of the service. Besides learning how to value businesses I had two investing epiphany's while a member of H.G. The first one was shortly after Bill Mann joined as a co-analyst with Tom Gardner. I tended to lean toward story type stocks and thought Bill was too conservative for me but on a whim I decided to pull a George Costanza and do the opposite of my gut feelings and buy an oil transportation company called Transmontaign (sp?) well before the big oil price boom.  I don't remember exactly how long but probably 6 months or so after Bill rec'd the company it had a take over proposal for about a 40% premium to the price I paid and about at Bill's fair value estimate. There was at least one more offer for a bit more. The moral of the story though, is that this not only made me a big Bill Mann fan but really opened my eyes to the value of "stock valuation". IE: there is a rationale behind what a stock is worth. The second H.G. epiphany came a few years into the service when I realized I made back my steep losses from the early 00's. There were two parts to this lesson; one that I could do well investing with a clue and the second lesson was about seeing investing as continuous process and the average of the inevitable highs and lows of the markets. IE: don't get too excited when you're the beneficiary of a rising tide and don't panic when you're going down going down like everyone else.

That brings me to my CAPS lesson (and real life lesson). I'm sure that like many here, I joined CAPS in 2006 when it was first opened up to the unwashed masses. It was probably less than a year into the competition when I hit my all time high rank of #5 (about 12K players at the time). and was feeling pretty cocky about my investing prowess. Fast forward a couple of years I was still a top 1% player late summer of 08 and by that time I didn't have a ton of pic's but saw you needed to max out your rec's to keep pace with the leaders in CAPS. I had also come to the conclusion that this was going to be another drive by recession and that I could potentially get back to the very top of CAPS going all in on stocks that would do well assuming a shallow recession. I was also an M* sub and at the time they were touting every financial company that eventually went under as once in a lifetime buys as well as a once in a lifetime opportunity to pick up the home builders. Needless to say I got crushed in CAPS, at one point hitting the bottom 10 player list and took a big hit in my real life portfolio as well. In both CAPS and real life I went through the same process; I thought about what I owned and why, cut loose the dead wood and redeployed to what I thought were the best opportunities at the time. One of the biggest gut check decision I made at the time was about whether I made a mistake investing in financials and home builders or just bad timing. I came to the conclusion it was a bit of both. There were companies I shouldn't have bought (Countrywide) but the survivors were being irrationally beaten down at the time and I shouldn't be afraid to stick with these sectors because of my earlier mistakes. It was a pretty tough time to be positive about investing when all but a handful of lonely voices were touting a new depression and anyone who invested in financials or home builders as insane.

One lonely voice from a CAPS blog or pitch that I remember said something to the effect that he was finding opportunities all over the place to essentially make back what he had lost. This was another epiphany for me as I was feeling the same way but wasn't sure if I was the only one. It helped a lot knowing others out there were seeing the same thing I saw and harkening back to my H.G. experience of getting back to black after my tech stock shellacking I really had faith that my moves at this point would eventually result in getting back to the top of CAPS and salvaging my real life portfolio. One of my favorite aspects of CAPS is that it's a public record, warts and all and anyone reading this can see how my strategy fared in CAPS. I never kept a record of my overall real life performance and had to sell to raise cash during the recession so for a while I gave up hope of knowing for sure how my moves played out in real life over the long term. A few months ago I realized that in addition to not being able to sell from an IRA account to raise cash I could go back through my statements in that account prior to the great recession to see how I fared (no new money added). I thought I did well but didn't know for sure however I discovered that I was actually about 33% above the highest level during the height of the mid 00's bull market even as we still struggle with the weakest recovery from a recession on record. I sort of remember a Buffet quote about being consistent that I couldn't quite recall but this is what came to mind as I realized how well I did (to that point). The lesson that was reinforced and that I'm hoping comes out of this blog is about the value of temperament, knowing how to strike the balance between self evaluation and not panicking. I'm sure there are some great Buffet quotes about this that I don't have a clue where to find however my quote is: "You need to understand when you made a mistake in timing and when you just plain made a mistake and when you made money because you were lucky and when you made money because you were right".

3 Comments – Post Your Own

#1) On September 23, 2013 at 1:01 PM, ValueInvestor747 (82.44) wrote:

Good thoughts. FYI, there is a book comprised solely of Buffett quotes - The Oracle Speaks: Warren Buffett in His Own Words

It's a quick and easy read. 

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#2) On September 28, 2013 at 11:23 AM, Zakrooster (71.27) wrote:

http://www.buffettfaq.com/ also has a lot of quotes from Buffet

 

 

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#3) On October 03, 2013 at 9:22 AM, MKArch (99.74) wrote:

Thanks guys, I have my resource for future post!

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