The Stupid Call: How I Became Overconfident
Over the past year, I have slowly but surely become better and better at valuation. Most of my stock market success can be attributed to that. What's more --- I've become extremely good at coming up with relatively accurate valuations in a very small amount of time. Many people will spend hours created very complex DCF spreadsheets --- I have a form that I call the "Quick DCF". It's a DCF, but I only need to plug in a few figures (e.g. cost of capital, long-term growth rate, initial free cash flows, net value of assets). I've been able to derive the figures for this spreadsheet in a more rapid fashion over time. In fact, lately, I've been making some stock picks on here with 10 minutes of research.
While I am right 65%+ of the time doing that, that's not enough. This is part of the debate in my head over the most efficient way to invest. I believe you are most likely to find the best buys by analyzing as many companies as possible. IMO, this is vastly more cost effective than taking a huge amount of time studying a few companies in detail. But it looks like I've hit the point where my accuracy suffers enough so that it's not "cost effective", so to speak. If I spend 30 - 60 minutes researching and analyzing companies, my success rate on my picks probably jumps up to 80%+.
The company I made a big goof on: Pega Systems (PEGA).
Yesterday, after my quick 10-15 minutes of research and analysis, I concluded it was a great red thumb. This morning, I decided to look at it again to write my pitch. Uh ... what can I say? I screwed up. The extra 15-30 minutes of research yesterday would've saved me from this reverse of course. Hey, I learned my lesson at least :)
If you want to read my rather humbled pitch on PEGA, click below:
Maybe this is a good thing. Everyone needs to be humbled occasionally. Maybe I'll even luck up and get out of this pick with a positive score.
Just for the record, I'm not suggesting that anyone who red thumbed this pick is "stupid". Maybe those who red thumbed it had better insight than me on some issues with the company or simply believe it's due for a technical retreat. Everyone has their own way of analyzing things and that's fine; I don't claim to be superior or inferior to anyone else. My main issue is that I got careless and lazy and betrayed my own analytical process. If I had studied this stock a little closer the first time, I would've stayed neutral on it, but expected it to rise towards $30 at some point in the future (not enough to make me green thumb it w/o further research, though).
Heh, guess I can hope for a +5 score on next Friday when I have my first chance to end it.