As our group of domino players assembled for our semi-regular game of strategizing and trash talking, Tim started to complain.
NVIDIA’s stock was up nearly 30% this year, but Tim had sold out. He missed out on the recent run and was nursing a bad case of seller’s remorse. It did not help that one of his co-workers, Eddie, continued to brag about how much money he was “making” trading stocks.
As the evening progressed, Tim’s complaining increased. It didn’t help that he was losing at dominos.
Finally, we stopped to take a break. Although I knew the answer, I asked Tim why he sold his NVIDIA stock.
He thought for a moment and said he used some of the proceeds to pay his daughter’s college tuition. I nodded my head in agreement and asked what else. Tim thought a minute and remembered he had to fix the transmission in his wife’s car and had allowed a credit card bill to build up from a trip the family took last summer.
Liquidating the NVIDIA stock allowed him to pay off those items. In the process, he and his family were in a much more stable position. However, it kept bothering him that he had missed out on the opportunity to own a “can’t miss” stock.
This is not the first time Tim and I have had a conversation of this nature. As a result, I asked him to keep an investment “scorecard.” Every time Tim made a buy or sell decision, or thought about making a buy or sell decision, he should document it. We have a large board in our office to provide this documentation. Otherwise, our memories have a funny way of playing tricks on us.
As Tim reviewed his scorecard, he recognized he sold his shares in Lululemon as well as Newsmax. By selling these Tim was able to reduce debt and increase his emergency cash to six months’ worth of living expenses. Both were great ideas.
Since he was complaining about NVIDIA’s performance, I asked him about Lululemon and Newsmax since he liquidated. He wasn’t too sure. As he pulled quotes on his phone, Tim realized they were down 46% and 83% respectively this year. Tim nervously smiled, recognizing his financial picture would be quite a bit worse if he had hung on to those.
I then asked him about Eddie’s portfolio. Tim immediately lamented about how much money Eddie said he was making.
I reminded Tim that this was the same Eddie who bragged last year about the killing he was going to make owning things like Walgreens, Intel, Moderna and Celanese.
Tim started to remember that conversation and pulled quotes on those holdings. They were all down between 54% and 64% last year. Tim gulped and had a bit of relief that he did not follow Ed.
Smart investors cover necessities first. If you don’t have emergency and short-term funds set aside, you’re constantly at risk of liquidating long-term assets to cover shortterm needs. Inevitably, this forces selling at less-than-ideal times. The valuation of a business tends to follow its earnings, but not in a straight-line. Give your businesses a solid five to ten years to earn their way into their valuations.
Hindsight is always perfect, but impractical. Whether reviewing your portfolio or your neighbors, everyone is a terrific Monday morning quarterback. However, it does not help your mental or financial picture.
A smart portfolio is balanced to serve multiple needs. It never makes sense to have all your eggs in one basket.
Charlie Munger humorously opined that, “Envy is a really stupid sin because it’s the only one you could never have any fun at.”
People often talk about their winners— especially the braggarts in our lives. They have losers too. Together, they comprise a portfolio. Run the performance on your cohesive portfolio. Otherwise, you’ll drive yourself nuts if you constantly focus on just one or two holdings. We call this “battling ghosts.” It is an unproductive endeavor.
Know what you own and why. The only portfolio that matters is yours. Your goals are most likely completely different than your neighbors or friends. Be true to who you are as that is all that matters.
Lastly, successful investing and financial management are predicated upon discipline and patience--not finding some superstar stock.
Dave Sather is a Certified Financial Planner ™ and the CEO of the Sather Financial Group, a fee-only strategic planning and investment management firm.
