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Value Investor Mea Culpa

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February 14, 2012 – Comments (8)

Fools,

I am afraid I have been a fool. Examining my past couple months of returns, this became obvious. While the returns havenot been disastrous, they should have been better. In fact, I would say I am lucky I have not done worse (down about 2% on year) given the many traps and shortcuts I have fallen into. I have diverged from the process that has historically led to my success-- and this post is aimed to keep myself accountable!

I have:

-Bought into assets without doing my own, independent analysis, instead relying on the work of others as a shortcut

-Bought into "growth stories" with very little assets-- mistakingly placing valuable capital at risk on the hopes of rosy growth assumptions that will likely not materialize

-Been overly aggressive in my allocations-- focusing too much on the upside in the investment without fully considering the risks

-Ultimately turned my back on my own value investing principles and acquired knowledge

-Abandoned the essential virtue of discipline when it was needed most

This is my mea culpa. A month and a half into 2012, I find myself trailing the S&P by about 3%. With a long-term time horizon, this is not the issue. More concering, however, has been my process, which will surely lead to more lagging results if not immediately changed.

I'm looking forward to getting back to discipline and a great 2012!

Foolishly,

XMFConnor

 

8 Comments – Post Your Own

#1) On February 14, 2012 at 11:43 AM, portefeuille (99.67) wrote:

more biopharma exposure would have been helpful.

NASDAQ Biotechnology Index.



enlarge

 

My fund made around 38% since the close of trading on December 30, 2011.

 

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#2) On February 14, 2012 at 12:00 PM, TMFDeej (99.25) wrote:

Don't be too hard on yourself Connor.  I've always found your posts and pitches to be informative.  You're obviously a good investor who knows what he's talking about.  We all experience style-drift from time to time.  The important thing is that you realized your mistake fairly quickly and now can take steps to make the necessary changes.

I always try to stick to my value roots.  Very rarely will I ever purchase into a situation that doesn't have tangible assets or is a growth story.  One of the few exceptions being "jockey" plays with experienced operates who have done it before.

I always ask myself several questions before buying a stock, including:

Is it cheap?

Is there a catalyst, or even better catalysts, that will unlock value in the next several years?

Does it pay me a dividend to wait?

Obviously a lot more goes into it than that, but if you have a few basic questions that you can quickly ask yourself it can save time.

See you around! 

Deej

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#3) On February 14, 2012 at 12:36 PM, XMFConnor (97.82) wrote:

@Deej,

Thanks. You are certainly one of my favorite investors to follow on this site as well.

Have you ever looked at GRVY or JCTCF?

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#4) On February 14, 2012 at 2:59 PM, TMFDeej (99.25) wrote:

Thanks Connor.  I have heard a lot of smart people talk about GRVY and I know that it has done well lately, but I don't know a while lot about it.  Isn't is some sort of cash-rich Chinese gaming company?  As a reneral rule I don't trust many companies from China.  Multi-nationals that do business there are fine, but chinese-based companies are scary.

I have never heard of JCTCF before.  It sure is small.  What's the thesis there?

Deej

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#5) On February 14, 2012 at 3:14 PM, Mega (99.96) wrote:

Connor - Do you have core holdings that you expect to own 1, 3, 5 years from now? I assume probably not GRVY or JCTCF.

I'm a lot more comfortable with my investment process since I started focusing a little less on valuation and more on long-term ROIC & growth.  Cheap stocks can be great, but for me high quality stocks need to be the foundation of the portfolio.

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#6) On February 14, 2012 at 3:30 PM, TheDumbMoney (58.64) wrote:

My mea culpa is that I suck!

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#7) On February 14, 2012 at 3:30 PM, SultanOfSwing (95.58) wrote:

XMFConnor, 

-Bought into assets without doing my own, independent analysis, instead relying on the work of others as a shortcut (me too)

-Bought into "growth stories" with very little assets-- mistakingly placing valuable capital at risk on the hopes of rosy growth assumptions that will likely not materialize (me too)

-Been overly aggressive in my allocations-- focusing too much on the upside in the investment without fully considering the risks (been there)

-Ultimately turned my back on my own value investing principles and acquired knowledge (done that)

-Abandoned the essential virtue of discipline when it was needed most (bought the timeshare)

I find that when I stray from my original methods without a well thought out reason, bad things can and often do happen.  It's a good thing you're recognizing that 'course correction' is needed.  There are some that stubbornly hold onto the bad habits they've developed, only to watch their portfolios shrink to zero.

Best of luck for the rest of 2012 and beyond. 

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#8) On February 14, 2012 at 10:19 PM, Option1307 (30.16) wrote:

Always good to sef reflect and definitely one of the hardest things for investors to do. So cheer up for having the courage to admit your mistakes (we all make them) and best of luck going forward!

+1.

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