A friend described my style of investing as “Get Rich Slow.” He was assuring me that my book, Dream. Invest. Live. didn’t come across as a Get Rich Quick scheme. I like his assurance, but I add a caveat. Any investment strategy comes equipped with a disclaimer and a modifier: Maybe. Regular investors will recognize my style as Long Term Buy and Hold (LTBH). My recent trade of DNDN was a good example of some of the quirks of LTBH, and a personal reinforcement for me to track my performance. Until then I consider my style to be: Get Rich Slow, Maybe.
Regular readers will know that my stock sales pay my bills and that the recent economic turmoil has meant that the only valuable shares left are in my IRA. I sell. I transfer money. I incur penalties. It isn’t a happy place, except that I am glad that I have the shares to sell. Others aren’t as fortunate. DNDN has fallen from a high of over $54 down to $6.40. In my opinion that is largely based on the market’s overreaction to disappointing earnings. My guesstimate is that DNDN is worth much more, possibly higher than $100. (Feel free to check my logic in another of my posts – Whew Good News.) Selling DNDN at about $13.50 hits an emotional rough spot as a result. The sale was at twice the low, but selling at the previous high would have meant months of living expenses instead of less than one month of bills.
Long Term Buy and Hold is a very descriptive title. It describes buying stocks and holding them for the long term. Different investors define the terms differently. Buying and Holding are easily agreed upon, but Long Term means many different things. Day traders can consider hours to be long term. Institutions may consider weeks to be long. I measure long term in years.
The short, clinical version of the trade was that I bought shares of DNDN in March 2003. I held those shares until I sold them in early January. I held those shares for over eight years. (My apologies to those who read my Motley Fool post. I used the wrong purchase date.)
As part of my normal personal finance process, I track my buys and sells. The IRS appreciates, or at least encourages, the effort. Selling so low was discouraging, but I dutifully entered the data in my spreadsheet.
(I don’t rely on web sites or financial software packages. Their permissions, standards and interfaces change too frequently across the years. Can you imagine anything associated with finances not being stable? That’s a joke there people.)
I entered the data. I looked at the result. And I chuckled at myself. The effect of the economic turmoil has cratered my investing confidence. Maybe retiring early was foolish. Maybe writing a book about personal finance was ludicrous. evidently another possibility was staring back at me from the screen. Maybe I was actually a reasonably good investor caught in unreasonable times. The sale I was complaining about was at a price 186% above the purchase price. Even after a 75% drop, I’d made an extra $186 for every $100 I’d invested. And as I said in the Motley Fool post, “Of course, if DNDN was at back in the mid-$50’s, the profit would have been about 1,045%.”
DNDN’s valuation is debatable. Such debates are the essence of the investing environment. I am on the high side of the debate because I think and guesstimate at much higher values and prices. The company’s initial success has been tempered by reimbursement issues and entrenched competitive pressures, but I believe the value remains, and much of the value is being ignored (especially the market and pipeline expansion). My initial investing logic remains. That is very encouraging.
I didn’t foresee every circumstance. No one can. Since 2003 the market has reacted to the mortgage meltdown, the debt ceiling, and the European crisis. There will always be similar influences, but I’ve been caught in more than a few for longer than usual. Investing entails risks, and even knowing the company isn’t enough to mean knowing all of the risks. This set of circumstances has definitely made me more apparent of the risks. But reflecting on the reality of what I bought, what I sold, and how much I made, and could have made has also made me more aware of the rewards.
AMSC fell from $43 down to $3.20. It was up 52% last week and ended the week at $5.64. Investors rushed away primarily because of a dubious deal with a Chinese customer that turned into a competitor. The stock rose on news of resolution or other sales. MVIS is such a story stock that it is a popular topic despite having fallen from over $60 down to $0.36 and has a market cap of only $42M. The company, Microvision, draws attention though because it has the potential to become very profitable while changing the majority of electronic displays. GigOptix’s stock, GGOX.OB, is trading at only $1.66. It’s market cap is even smaller, about $35M, despite the company having a forward P/E of only 15.
All of these stocks were purchased at least eight years ago. Active traders have been bought and sold of those stocks throughout that time I’ve held. I understand investing, but I also appreciate the life that exists outside of it. I could’ve made more. I could’ve managed my risk better. But doing so would’ve required much more time and effort spent on investing, and that much less time and effort available for living. I named my book Dream. Invest. Live. specifically because dreaming and living are important and investing is merely a bridge between the two.
I continue to hold these stocks that I bought. I intend to sell them, unless money comes in from income, revenues, or windfalls. I don’t intend to sit in front of the computer, finger poised to buy or sell based on a moment’s news or a stock’s twitch. Yes, I check them daily, though more as entertainment than expected action. An analogy I make in the book is that of a forester. Some people’s investment style is like dairy farmer continually working at collecting milk. Some harvest hay, something that is done a few times a year, or harvest one crop a year like corn. I am more of a forester, tending to something that will be harvested years later; and if I am lucky and frugal, I might be able to get by with a branch or two and not have to chop down the tree. And I’ll visit the tree often in the meantime.
No dairyman, farmer, or forester has a guarantee. Hopefully they find a life that fits their style. As an investor, my style is to buy companies that I think will be worth a lot more, possibly in a few years, and to wait out the intermediate ups and downs. My waiting is over, and we are climbing out of the downs toward the ups. I am hoping for a sustainable harvest. I suspect all it really takes is remembering that Long-Term-Buy-And-Hold has a similar and simpler name. It is called patience, and patience is and has always been, useful and powerful. That’s true in investing, and in living.