My involvement with the stock market started with the market crash of 1987. I was all of 23 years old at the time, and working at the NBC affiliate television station in Fort Myers, Florida. I owned no stocks at all.
But the crash left a turbulent wake of fear and worry in its path. I remember one of the station’s news anchors at the time being absolutely frantic about the huge one-day 25% drop in the value of his stock market holdings, not to mention the hundreds of thousands of retirees who lived in the area. The crash spurred my own interest in how the markets worked, and how value is created and subsequently destroyed, depending on the short-term sentiment and expectations of stock investors.
Not long after, I purchased my first stock, Wal-Mart. I didn’t lose money, but I didn’t make much either. It was my first exposure to one of the hardest rules of investing: The biggest gains come with holding periods of years and years. If you sell too early (or in the middle of a clear “uptrend”), you’ll rob yourself of the bigger gains of a more patient investor.
I learned the benefits of that lesson. And I absorbed similar mantras preached by many of the famous investors I was beginning to interview while working as a reporter at PBS Nightly Business Report. From 1993 to 1994, I noticed that shares of Nike had fallen out of favor as investors questioned the company’s value and long-term growth story. I was able to quintuple my investment in a matter of a few years’ time.
I also took to heart Warren Buffett’s idea of using scarcity, value and the ratio of supply and demand with the purchase of personal real estate, noting the limited amount of parcels available for development along the U.S. east coast at any one time. The property we purchased at the time has become one of the best investments in our family’s asset portfolio.
I also made my share of mistakes along the way, prematurely selling shares of Adobe during the run-up to the 2000 tech bubble. The lesson I learned was about dealing with volatility. Certain kinds of stocks, such as technology and biotechnology firms, are more volatile than others. When the market does well, it swings higher than others, and when the market falls, it falls faster than others. So it’s important to not accidentally “overweight” the shares of certain stocks to the point that its ups (and especially its “downs”) throw your portfolio out of your personal comfort zone.
Another mistake I made was learning (the hard way) not to be too pessimistic on the U.S. economy, and that rallies can pop up when an inexperienced investor least expects it. I remember being fairly heavily short in late 2002 (after the S&P 500 had already fallen more than 20% that year). I was betting on still-deeper declines to come in September and October, only to watch the index rally more than 20% higher through the end of the year.
I also learned the value of striking at the point of maximum pessimism when it comes to investing for value and growth. In 2003, shares of McDonald’s had fallen to their lowest point in a decade amid worries that the fast-food company had lost its way with franchisees and healthier-eating consumers.
But with a strong dividend and good cash flow on its income statement, it was clear to me that the company was still doing very well and would outlast its current period of underperformance. After buying the stock at $15, I more than tripled my money over the next three years.
I carry this value investing approach with me to this day, and it’s the core investing philosophy of my newsletter, Total Wealth Insider.
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