Quite often, when reading an article in a magazine or a column in a newspaper, we skim over it, picking up what we think may be important. We rarely go back to review what was contained within that article or column. Therefore, after a few days, what we have read is lost in our memories. It is for this reason that for nearly thirty years we have kept a journal from the articles, columns, books, and reports that we have read. The following insights to investing stand out as advice that we can profit from.
An investor buys perceived potential and sells a lack thereof. What did you do when the stock you bought runs up to ludicrous levels or when another begins to tumble as the potential for future growth declines? Have buy and sell disciplines. Don’t chase hot stocks. Look for stocks with solid, long-term growth potential.
“A lot of people have come to think that picking stocks is as easy as big-game hunting at the zoo. (Laszlo Birinyi of Birinyi Associates). Hopefully that perception was eradicated during the last bear market? Are you an investor or a trader? Have a long-term time horizon. Don’t think that you have the ability to determine where the stock market is headed over the short haul. The direction of stocks is random at best over the short haul, but very predictable over the long term.
When investing, don’t look to get the final ten percent of a stock’s move upward or believe that you can buy within ten percent of the bottom. Rather look to capture that middle eighty percent of the move! Now, more than ever, investors are being controlled by fear and greed. Fear that the bear market that ravaged their portfolio five years ago will come back and greed that when stocks move upward we will miss the big move. Maintain discipline. Look to capitalize on secular trends. We believe energy and health care are two of these trends.
“Stay on the offensive. Always look for good ideas and push out the mediocre ones. If every week you find a couple good things and say, ‘stock number thirty-one in the portfolio is okay, but these are better. Sell number thirty-one!” (Peter Lynch, former legendary manager of the Fidelity Magellan Fund). Don’t fall in love with a particular stock or sector! Continually challenge your ideas among yourself as well as your peers. Change when it is appropriate. Don’t carry negative baggage around!
We know that it is impossible to be right all of the time. We just want to be right over time. Recognize that there are many times when you may be wrong! Remember, a .300 hitter is in the hall of fame. However, that batter gets out over seventy percent of the time! The key is when you make a mistake, sell and move on.
“I did so by never becoming too confident in having made the right decision.” (Former Treasury Secretary Robert Rubin, upon his retirement and in response to the question of how he lasted so long). As mentioned above, always challenge your ideas. Be concerned with the downside. The upside will take care of itself.
“I work in a humbling business. That’s what Wall Street is all about. If you are afraid to be humbled by the market, stop reading and go buy a bond.” (Market Analyst, James Cramer). Self explanatory.
“Try not to react too much to the market because the market is reacting to things you don’t want to react to. Keep your eyes on the horizon and ask yourself, ‘which stocks will I be kicking myself over if I don’t own those stocks five year from now.’” (Kevin Landis) We believe that those stocks you will be kicking yourself five years from now if you don’t own operate in the technology, energy, power generation, and health care industries.
“Once a bull market get under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, the people superimpose an ‘I can’t miss the party’ factor on top of the fundamental factors that drive the market.” (Warren Buffett, C.E.O., Berkshire Hathaway).
“An investor doesn’t pull up his turnips every day to find out if they are growing.” (Former U.S. Treasury Secretary, Paul O’Neill). What do you do? Do you check your portfolio every day over the internet? If so, relax and let some time pass! If you purchased a security for the long haul, don’t check on it every minute. Remember, “a watched pot never boils.”
We hope these little tidbits of information brings into perspective how you view your investments. Perhaps you have fallen into some of the traps noted above. If so, don’t carry around that baggage. Make an investment plan now! Act now!
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks and fluctuations in principal will occur. Please research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, Please call 518-279-1044.
