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The Magnificently Awful and the Eternal Optimism

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August 01, 2007 – Comments (2)

I have again concluded that I am absolutely poor in timing the market. Me bad (part un) ...

From being in the top 50 of CAPs, my naive-ness led me to totally screw up my score. My standing now stands at a humbling 6000+ position with a unforgivable 37th percentile in accuracy. I really fussed up the accuracy score because I thought I could conviniently double down and not be punished by ending the stock pick. Me bad (part deux) ...

I hold up my hands again and you can check the individual stocks in my Icarra that I have mostly bought while the tide is rising (MIDD, PRAA and COLM) and have not quite mastered learnt the fine art of objectivity. Buffett was absolutely right that buying a stock because it is rising is one of the worst reasons to buy a stock. Me bad (part trois) ...

Thankfully that was not my only reason to buy MIDD and PRAA. I had done some due diligence and basic valuation work. Not the best entry prices, but it also goes to show that over time, a few dollars off the best level of entry does not matter too much.

So ... did I ever get anything right? What I am fairly proud of is my resolute-ness to hang on during the tough May 06 period. I had the full confidence that MIDD, PRAA and COLM were solid money making businesses and had no-worries at all during the difficult period during the summer of 06. Me good? Not quite but partly yeah!

What I am less proud about is that I did not have quite enough resolute-ness to add while MIDD and PRAA were down. This was tied to the size of my portfolio and my comfort level in exposure to the USD. I have since then done a re-think for my portfolio strategy and have a clearer strategy now.

Over time, I am gaining confidence that I have improved in objectivity and I am very proud about my CMG-B purchase in particular both in real life and in CAPs.

What made it special is that I bought CMG is the following:

1) My purchases was triggered in the midst of a rising market and had the presence of mind not to nit-pick over a few cents for my buy-in price. I maintained objectivity and stuck to Shelby Davis's policy to buy in good times and bad. I am also glad to say that it's cruising today a rise of 9%-10% after another jaw dropping quarter report. I am in fact now wishing that I would be able to get a better price for this company.

2) I had a clear strategy for the stock and a portfolio strategy to support. I stuck to it with without the anxiety I used to have in daily tracking my portfolio and re-freshing every 5 minutes (ha!).

3) I actually was looking at CMG before Bill recommended it (honest!) because I was completely impressed by Steve Ells on CNBC. Call it naive or whatever, but I am from Procurement. It's my bread and butter to sniff out the real deals and call the bluffs. I ran the thumbnail and was convinced that it was a great buy. And then Bill made the decision easier by recommending it.    

So what did I actually learn ... ?

- There is great wisdom and advice from Peter Lynch that you can miss plenty of rocket-stocks and still make great amounts of money. I think this simple advice has proven my guiding light in moments when I am kicking myself for missing a rocket of a stock. My record shows that I still out performed the S&P (at least for now).

- I have notably shifted my focus to learn more about the business and company and less about the price of the stock. My purchase of IIVI at a fair price in what I consider a great company is one of my experiments. I continue to have convidence that IIVI will outperform over the long term.

- As my portfolio and diversification grows, my comfort level also grows to the point where I am no longer affected by that much by the daily gyrations. I have been hit hard by PRAA (15% down), MRH (10% down) and NFLX (15% down) but yet my total portfolio only suffered a 5% drop as of today due to the fact that CMG-B surged close to 10% today.

- There is wisdom in diversification if you are not a stock market wizard. However, admitting that I was not a wizard was a journey of self-realization with the work constraints and balancing one has to undertake.

Shelby Davis still made USD 900m and was second to Buffett all the way. Not bad at all if you ask me. Sometimes you don't need to win every battle. 

It's the joy of trying and learning that makes it all worthwhile. 

2 Comments – Post Your Own

#1) On August 01, 2007 at 8:10 PM, Imperial1964 (98.27) wrote:

PRAA and MRH?  Those are two of my picks.  I bought PRAA before the drop and I bought more afterward.  As far as MRH, I see it getting worse before it gets better (deteriorating market conditions), so I'm waiting a little bit.

PRAA was just a correction due to expectations getting ahead of reality (IMHO).  And though I think MRH is a great value, I am waiting for what I expect to be a better entry point (though I'm not very good at timing either).

Keep playing for the long-term.  Then market timing doesn't matter that much.

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#2) On August 03, 2007 at 2:51 PM, TMFtheEdge (99.22) wrote:

Hi Imperial1964,

Well, I did not know my thoughts would get feedback. :)  

Anyway, over time, the business and industry prospects are getting more important to me. I am comfortable with PRAA but will be re-thinking MRH. So I think we are very much aligned.

I share much of your thoughts about PRAA. There much better clarity in their revenue sources looking ahead (+ record purchases in the recent quarter) - to me, it's now about how well they execute their collections.

For the case of MRH, I am actually evaluating their prospects. The way I see it right now, from a valuation basis (P/B) they look cheap. However, the prospects going forward are less clear to me. Ideally, I would like to have a "Davis double" ... ideally.  

This requires more thought because there are much better openings right now at BWLD, LOOP, VLCM and SBUX which I am interested.

Most likely, I will pass for adding to MRH.

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