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Reflections of a Wannabe Investor

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September 06, 2011 – Comments (1)

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Board: IV Value Central

Author: MarketEmperor

 

The Early Years:

I guess saving money came natural to me, having watched some of the tough times my parents went through when I was growing up. I knew at the age of 12 or so that I would never allow myself to have to go through what they went through, or make some of those tough decisions on whether to buy food or to pay the electric bill. I started working at the age of 13, creating a lawn-mowing business with my childhood friend. We went in 50/50 getting the equipment we needed and spent every weekend either out mowing lawns, or out looking for new accounts to add. At 14, I was able to get a job at a nearby company that specialized in corporate and college outings, working as a busboy/trash hauler. For a 14 year old making $7 an hour, I was pretty happy. By 15, I was promoted to a manager and was put in charge of 15-20 others, making slightly more than minimum wage, but getting a ton of hours. There was one week I put in over 110 hours, bringing home more in take home pay that week than one of my parents. Needless to say, this money never even saw the pages of a savings account journal.

Initial Investment Years:

Fast forward a few years, I have finished high school and have 2 years into my electrical apprenticeship. I grew tired of that field, as it can get pretty darn cold working outside wiring houses in the winter. I joined the military at 18, finished basic training, and headed off to California to learn a language. After being moved a number of times, I finally had a semi-permanent barracks assignment, and a decent enough roommate. One day I came into the room and he was reading a book called "Rule #1." We got to talking about it and he tells me it had to do with investing. I had no idea what this was, so I read the book after he had finished it. Little did I know that this book would set me on a path that would shape my future in a most exciting manner.

After reading this book, I was excited that I may have found a way to make myself never fall into the traps my parents did. I knew I needed to save money for my future, but there was always the one question: What the heck do I do with it once it is saved? After doing some internet searching, I was brought into the fold here at Fooldom. I subscribed to both Stock Advisor and Hidden Gems, and to my excitement, there was a huge list of must-read investment books. I immediately went to Amazon.com and ordered each and every one of them. As they came in, I prioritized which to read first, and set off on my task to soak up as much investment knowledge as I could.

At this point, I knew absolutely nothing about investing in stock. I figured I would just follow along with TMF and use their stock picks. So, on 2/17/2007, I deposited money into a Roth IRA, and on 2/28/2007, I purchased my first stock, THE (I do not even remember what the name of the company was.) As the months went by, I purchased more and more of the recommendations and added more and more to my IRA. Again, I had absolutely no idea what I was doing in regards to evaluating the companies. All I knew was that I was investing and on my way to achieving my goal of financial freedom. At this point, I didn't know I was supposed to track my investments, so I didn't see the trouble I was actually getting myself into, losing 18.26% simple return from 2/17/2007 through the end of the year, or in other words, a -20.46% annualized return. This was compared to a +1.02% return for the S&P500.

As time went by, my investing knowledge increased dramatically. I was in the bookstores every week, looking for new material to soak up. I was reading Berkshire Hathaway's annual reports, and was following the principles of Ben Graham. I began seeking out ways to value companies myself, and also began to follow TMF1000. As I was coming into my own here, the floor was pulled out from under me. The dog days of 2008 were here, and there was blood everywhere. The bright side of this was I was prepared for this now, albeit in a smaller way. I knew that I wanted to be in stocks, so I kept dipping my toes in as the market went lower in lower. Despite the fact I was getting some excellent prices, I ended 2008 with a -39.49% return, to the S&P 500's -38.49%. Getting better, I guess.

As yet more time went by, I began to understand what made companies great, as well as how to read their balance sheets. I began to vet my investments instead of blindly following the recommendations. I began looking for investment ideas everywhere. The restaurants I ate at become future cash flows, the clothing stores become possible million dollar ideas. I was hooked! This was the year I ventured out to pick some stocks of my own, and some of them became real winners. The teachings here at the Fool gave me confidence to invest in the companies that I thought were built to last. By year's end 2009, I had a +51.60% annualized return, to the S&P500's +23.45%. That's right Mr. Market, you got served.

Time seems to continue to pass by, and the more it does, the more I learn. I began to review my old investment decisions, and began to see where I had made a lot of mistakes. I was investing on whims, allowing my emotions to creep into the picture. A hot stock tip here and there at the beginning of my investment career had really hurt my overall returns. I vowed to stay committed to a strict investment philosophy, and that was to buy where I saw great value at a discount. The market had risen nicely off its 2009 lows, and I was hesitant to dive too much deeper in the market at that point. That being said, I was still able to find some bargains. By year's end 2010, I had a +25.13% annualized return, to the S&P500's +12.78%. Again, gotcha Mr. Market.

After reflecting on the first few years of investing, I knew I would need more education and more practice to achieve the goals I want to achieve. I took the necessary steps to put me on a path to finishing my Bachelors in Business, and decided my ultimate goal is to apply to both Harvard and Columbia to pursue my MBA. There are still many things that need to be completed before I can do this, but it is a goal none the less. I think one of the most important qualities in investing is being able to admit when you do not have sufficient knowledge, and make a conscious decision to either seek that knowledge out, or allow someone else with the proper knowledge to advise you.

Bringing us back to the present, 2011 has been a pretty good year investment wise, although the market has had its share of troubles. Between the seemingly unstable political environment, European debt woes, low consumer confidence, and many other factors, there is good reason for the market to be swinging this way and that. Taking the lessons and information that I have learned over the last 4 and a half years, I continue to search for investment opportunities that present value at a discount. So far, this year’s returns have been a +15.65% annualized for me, and a -5.29% for the S&P500. It seems this may be a third year of market beating returns, but I know that my holdings may swing in the opposite direction, so we will see.

Investment Record (So Far):

I want to keep a record of my investments, and update them each year. If I cannot beat the market, why should I put so much effort trying? So, listed below are my annualized returns since 2007, compared with the S&P500. I will also list my holdings and what percentage of my portfolio they now make up.

2007
Me: -20.46%
S&P: +1.02%

2008:
Me: -39.49%
S&P: -38.49%

2009:
Me: +51.60%
S&P: +23.45%

2010:
Me: +25.13%
S&P: +12.78%

2011 (So far):
Me: +15.65%
S&P: -5.39%

Holdings:
BRK.B: 27.9% (large increase due to recent low prices)
MSFT: 8.9%
KO: 5.8%
MKC: 4.8%
WMT: 4.4%
SBUX: 4.8%
PG: 4.7%
CMG: 10.2%
JNJ: 4.9%
MKL: 5.8%
PNRA: 5.1%
BWLD: 12.7%

Final Musings:

Investing is a passion for me, a job I can see myself tap dancing to work for. I think sometimes it can annoy others, possibly even my wife, because I can’t shut off that part of my brain. Whether we are at a bar, the grocery store, a restaurant, I need to know what is selling, what I might pay for the whole business, and whether I think it would be a good investment. Also, reading has pretty much taken over my life. My bookshelf is full of investment books of one kind or another, from Ben Graham to Phil Fisher, Damadoran to Lowenstein, etc. I simply cannot get enough of it. I think the most important lesson I have learned, and looking back on what happened to my portfolio in my first two years investment, is to follow rule number one: Don’t lose money.

For any brand new investors reading this (I say brand new because I myself, having only 4.5 years of experience, am a very new investor), continue to learn everything you can about investing if it is something that you enjoy. There is a steep learning curve here, and it takes time to get over it. I still do not believe I know enough about investing to say I have gotten past the curve, but I think I am on my way there. Life-long learning applies to the various competences in life, investing included. Take what you may from this, and Fool on!!

Regards,

Kyle

1 Comments – Post Your Own

#1) On September 06, 2011 at 3:55 PM, WikiCPA (58.63) wrote:

Great post Kyle! I'm 22, entered the job market but have been learning to invest ever since 17. Like you, I haven't done well but I've learned from my mistakes and have improved every step of the way. Everything you said, reading, turning off that part of your brain, is something i think all investors go through. Just part of that foolish way

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