MY FOOLIVERSARY: What I’ve learned in 3 years
MY FOOLIVERSARY: What I’ve learned in 3 years
A lot has changed over the last three years since I signed up for my first service from the Motley Fool. The Stock Market was just starting to recover from the depths of the Crash, and I was almost panicking because I didn’t know enough about stocks to know which ones to buy, when to buy, or how to buy in stages. While I didn’t make nearly as much money as I probably should have, I did learn enough to make a healthy return. I hope we never have to live through another Crash like that, but the probability is high that it will happen again. Maybe not as big, but it will happen. In the meantime, I continue to try to learn from my mistakes and figure out what went wrong. And to learn from my successes (Apple!) and figure out how to replicate them.
In parallel, I’ve been using CAPS to figure out more about picking & shorting stocks. It took me almost three years, but I think I finally realized that I score points as quickly by picking obvious “losers” as picking winners. I’ve had some decent wins, but the chance of picking a stock to go down vs the S&P 500 over the long-term are much higher than the chance that they will outperform. And if you “short” any of the stocks that you hear about in one of those spammer emails, , you will probably do well. I struggled to get a rating above 50 – 60 for a long, long time, but over the past several months I have scored a lot of points (~1,000) and I’ve increased my accuracy substantially. It will take me awhile to get up to the highest levels in CAPS (e.g. over 99), but I’m much more confident in what I’m doing. The reality though is that even at this pace, (and assuming TMFBABO ever slows down!), it will take me many, many years to come close to catching the leaders. Between their accuracy and the points already scored, I can only hope I get lucky with some stock picks that give me a few thousand points along the way. But it doesn’t matter anyway. I’m not trying to win CAPS. Don’t get me wrong, I’m trying to do well in CAPs. I want to do well, to demonstrate that I’ve learned a lot. But it’s most important to apply what I’ve learned to my own investments.
And so far I’m doing well with my investments.
Here's a summary of what I've learned:
1) I’ve learned that it only takes one big winner to make up for a lot of smaller mistakes. After all, you can only lose 100% of your money, but you can gain much more than 100%. Apple has done very well for me. And I expect them to continue to do well.
2) Buy in thirds. I didn’t understand this for a long time. But now I think I get it. When you buy your first third, you start to pay closer attention to the stock. You see the price swings. You learn if it’s seasonal, cyclical, volatile, etc. Then you’re ready to buy another third. In the meantime, there can be broader macro issues that can give you a better opportunity to buy. So buying in thirds makes a lot of sense to me.
3) Don’t invest in too many stocks. This probably seems obvious to many people, but it took awhile for me to understand this. And this number varies depending on how much time you can devote to studying and tracking stocks. I have a lot of time now. But soon I will start a new company and I won’t have so much time, so I’ve been cleaning up my portfolio. If you have too many stocks, even for someone like me who loves to read and study, it can become overwhelming, and if you happen to miss multiple major events, for the company or the economy, you may miss the best opportunity to buy or sell.
4) Invest in what you know. I just posted a new blog entry earlier today because of what I’ve learned (or not!) about the banking industry. I even have a friend in the industry who is pretty well known, but it’s still too much for me. So I’ve invested in a few financial services companies, but small in comparison with industries that I know well (e.g. Technology companies).
5) Look around to see what your families and friends are buying and using. Some of the best stock ideas have come from the latest trends that started when my kids came home to tell me about the latest cool stuff. This is how I heard about Zumiez, Hansen (now Monster), Under Armour, etc. I have done very well with this approach. You still have to study the companies and make sure they’re making money, but you can find out about early growth companies even sooner than you might read elsewhere.
RESULTS AFTER 11 MONTHS
Back in September of 2011, I recommended six stocks that I was personally “buying on the dip” in the broader stock market. At the time, I thought I was picking good, solid stocks. And I was especially bullish about Apple. It was the worst performing stock initially, but then it recovered. And then some! DNR did very well at the beginning, but it’s price is about the same as it was in November when I last provided an update.
As I said back then, I think these are great stocks for the long-term, with the exception of ZIP. It’s not clear to me yet that they will be a “winner”.
Overall, these stocks are doing well.
Here’s the latest update on the stocks I purchased last September:
Current Price Gain/(Loss) %
[as of 07/23] [since purchase]
CVX $107.95 19.4%
EPD $54.65 34.4%
AAPL $603.83 50.7%
DNR $14.85 28.2%
GLW $12.12 -1.1%
ZIP $11.31 -32.7%
Thoughts? Let me know - please post your comments, questions or thoughts below.