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The Zen of Investing

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January 18, 2007 – Comments (1)

I'm back under All Star status on my CAPS portfolio so that must mean it's time to blog again... woe is me... no, just kidding.

I think there's a lot that could be learned from a zen monk about investing. Sure, a good deal of investing is about evaluating the business and runnin' the nummies, but that's the obvious part. It's once you've decided you like the business and the nums look good - that's when the tough part starts.

Say you've found Tasty Tasty Burgers - a quick-serve restaurant that makes the best burgers you've ever tasted (especially the "tasty treat burger" with blue cheese, bacon, and mushrooms). You not only like the food, but you think it's got a good business concept and solid expansion plans. The company has a really clean balance sheet with a decent cash pile and no debt, free cashflow is positive, and the stock is trading slightly under the comp group. Fantastic - you buy.

But then, seemingly out of nowhere, the stock slides 20% in the course of three months. First, earnings came in at the midpoint of management's range, but it was under analysts' estimates and the stock dropped 7%. The post earnings fall-out continued for a couple days, shaving of another few % points. A couple weeks later an ecoli scare, though not involving Tasty Tasty, sent all burger-focused quick serve restaurants down. As sentiment turned from bad to worse the stock just got softer and softer.

What do you do? If you ask me, the right answer here is to either hold the stock or buy more. One quarter does not a company's value make (or break!) and an ecoli scare somewhere else is a somewhat non-event. Of course, I'm also not staring down at a stock that has shed 20% since I bought it. That's where the zen comes in.

The part of investing that is less focused on, and maybe harder to learn, is the temperment required to hang in there (or bail when appropriate). You can do all the analysis you want - perfect analysis - but if you're going to bail at the first whiff of smoke, then your epic finance work will be for naught. Given how much noise there is out there and how many differing opinions (have you been on Yahoo!Finance Message Boards lately?), it's a major task just to block out the noise all around.

I'm far from having that "ohm" state of mind, but the really successful investors (and traders too) have their minds under control just as much as they can work the nummies cold.

1 Comments – Post Your Own

#1) On January 18, 2007 at 10:40 PM, TMFSpiffyPop (99.41) wrote:

Matt,

Nice piece. I'm thinkin' you should turn that into another of your good articles for Fool.com!

Foolishly, David

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