The Motley Fool Discussion Boards
Real-Money Stock Picks / Messed-Up Expectations Portfolio
|Subject: Investing is not for the weak of stomach||Date: 11/20/2010 8:21 PM|
|Author: TMFGebinr||Number: 47 of 1268|
I just spent the last half hour paging through over 100 posts on the Stock Advisor Nvidia discussion board, dating back to mid July. For some context, here's the 6-month chart for the company: http://finance.yahoo.com/echarts?s=NVDA+Interactive#chart4:s...
In July, the stock was still falling from a high of about $18 reached earlier in the year. It ended up bottoming out at the $9 level in the first couple weeks of August. The company's stock price has since climbed back into the low teens, closing last Friday at $13.75.
What struck me was the amount of teeth gnashing that was going on during the fall in July and August and the nearly complete lack of any cheering when the stock price turned around. But I suppose that shouldn't really surprise me. After all, we feel pain twice as much as we feel pleasure (when comparing equal amounts of loss or gain).
It also reminds me of just about my favorite sentiment when it comes to investing. This can be found partway through this article I wrote last winter. http://www.fool.com/investing/general/2008/02/14/stocks-make... You don't need brains to be a great investor; you need a strong stomach.
Peter Lynch pointed out that companies very often go through 50% price swings from a high to a low or a low to a high, all within a single year. He also wrote that if you cannot accept such wild swings, then investing in individual stocks (or maybe even the whole stock market) may not be the thing for you.
Given that introduction, obviously I believe that temperament is a big part of investing. And, I think I've got a temperament that will lead to success (though only time will tell). Maybe I've lived longer than those crying the loudest when share prices are down, but I'm of the belief that "this, too, shall pass." At the very least, that belief leads to fewer ulcers. :-) It also leads to the conclusion that buying shares when companies seem to be totally losing it, after careful research and thought about the prospects for the company and determining that those are actually not bad, is a great time to be buying. (That's the MUE outlook, in a nutshell.) And if the share price continues to drop, reevaluate as necessary, but don't be panicked out of the position. At least not just because the share price dropped further.
That takes a certain amount of intestinal fortitude, if you will. A strong stomach. But if the analysis is reasonably close to being right, then the strong-stomached investor should do very well over time. And there's a big clue right there: "Over time." I don't expect to be right within the next few days or even the next few weeks (though I have been lucky, so far, in that both positions in the MUE Port are up within days or a couple of weeks of purchasing). There's no way that I'll be lucky enough to pick the bottom.
What I'm looking for are situations when everyone else has panicked, when they conclude that the company is not going to be able to do anything (or very much) going forward. For ever. And that's the time to buy. Take advantage of everyone else's freaked-out psychology. They're running around like chickens with their heads cut off. Instead, take a deep breath, look the situation over, and buy if things look reasonably better than everyone believes. And don't worry about the short term (those headless chickens can dominate for a while).
P.S. Please note, upon further contemplation, I'll stay with the name Messed-Up Expectations (MUE) Port, rather than Headless Chicken Port. :-)
|Copyright 1996-2015 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|