We all feel like the world's worst investor sometimes. David coaches on how to handle yourself - and your portfolio - when the market is down and your confidence in your investing abilities has been dragged down with it.
Rule Breaker Investing
Meet the World’s Worst Investor
It's the Rule Breaker Investing Podcast with Motley Fool Co-Founder, David Gardner. And welcome back to Rule Breaker Investing. I'm so glad you're with me this week and happy pre-Thanksgiving to all U.S. Americans and to all the rest of you, I hope you're enjoying late November. So this week, I'm reflecting a little bit on the earnings season that has been. We're mostly through earnings at this point, companies that typically report on September 30th as a quarter end, whether it's a year end or a quarter end. They're reporting earnings and you have to wait several weeks, usually four weeks or so. And by the sixth week or so past that time, we've seen all the earnings. So late November, we've seen the September earnings and I have to say it felt like a minefield out there for me. I don't know about for you, but it seemed many a morning I would wake up and see one of my stocks, sometimes one of my favorite stocks down 10% or more. In fact, I asked our numbers guys here at the Fool to run, which stocks have moved? And I have to tell you, I'm surprised that we've had some good positive movements because I was thinking it was just all stuff blowing up down 20%, but we've actually had, we did have some nice gains. We've had some nice performance by Netgear, one of my stock recommendations and stock advisor, amazon.com seems to do well. All year long amazon.com has done well, Netflix with some pretty good earnings in my land. But I, many others, Sierra wireless, even a good strong company like Nordstrom, not off 10%, but off several percentage points, just a lot of companies that didn't do so well. And it made me feel a little bit like the world's worst investor. And that's a phrase that means a lot to me. The world's worst investor, because if you Google the phrase, try this at home, world's worst investor, if you go down to about the fifth or so link, first page of search listings on Google, I'm there. My article Meet the World's Worst Investor is the fifth highest link by that search algorithm. And there I am and I take a perverse and capital F foolish pride that I am there on the top page of search listings for world's worst investor. And in fact, I love that column so much that I'm going to feature that, this podcast. So this week, we're going to keep it short. We're going to have a dramatic reading of me reading what I wrote on August 1st of 2006. Because as I went back to this column, I was reminded much the same feelings that I felt that I kind of feel today, and maybe you can relate. So here we go, Meet the World's Worst Investor. I want to remind you before I start, I am reading this. I wrote this on August 1st of 2006. Therefore, any stock you hear mentioned in this short column will have moved significantly from where it was on that day. The world has changed much nine and about a half years later. And that's part of the fun of going back and seeing what happened, how we were feeling back then, and how things have played out. So here's how it goes, Meet the World's Worst Investor. My stocks have been getting killed. How about yours? It's been a horrible run since the market peaked in late April. The NASDAQ is down 12% in just a few months. You know how bad it's been for me? I wish my stocks were down just 12%. As the lead advisor for Motley Fool Rule Breakers, I've watched many of the 34 dynamic growth stocks we follow drop 30% to 50% from their highs. Maybe you know the feeling. Every good earnings report these past few weeks triggers a 10% sell-off, Netflix, great numbers, dumped, intuitive surgical, expanding its robot assisted surgery from prostatectomies to hysterectomies, huge profit margins, who cares, dumped, Disney, biggest box office opening ever with pirates of the Caribbean too. And don't let the door slap you on the way out, Mickey. Every new buy you make drops, and that stock you'd meant to sell lasts spring. It drops too, and the industries you like are in cyclical declines. Interactive entertainment, a great long-term place to concentrate some investing dollars, is sagging as it waits for the PlayStation 3. Sure I think Electronic Arts is going to beat the stock market of the next 10 years, but this summer doesn't care. How about alternative energy stocks? We follow those too in Rule Breakers. The world knows it needs to begin the shift away from oil, and government subsidies are forcing progress in areas such as solar and wind energy. And speaking of solar, these stocks have been fried, summer side up off 20% across the board, and those are the strong ones. You know the feeling, and even if you don't, I know the feeling. I felt it before during several bear markets, world's worst investor, me. William O'Neill, the founder of Investors Business Daily, seems to offer the perfect bomb. O'Neill advocates selling any stock that drops 7% from your purchase price. His premise? This will help you avoid large losses. After the summer of 2006, O'Neill's advice may strike the new investors somewhere between tempting and ingenious, but for those of us who are shooting for the real home runs on the stock market, jitter bugging your way out of a stock because of a couple bad days doesn't feel like investing. The most dynamic winners will routinely give back 20% gains along their multi-year runs to stock market glory. At Rule Breakers, we will occasionally cash in a profit if the valuation gets silly like Bankrate for a 5-month, 58% win earlier this year. And we'll cash out any loser who's worsening fundamentals make a comeback more difficult see overstock.com. But for the most part, we're buying and holding the best growth companies in America looking for a 5-year plus ride. We call these companies Rule Breakers because they shake up the stodgy, old industry stalwarts. Think of how Blue Nile is slowly but surely taking market share for engagement rings away from Tiffany and company. Of course, Blue Nile is down this summer. And that's my point. You see, when gross stock investors feel like the world's worst, causing newer and shakier hands to sell, I've learned to do quite the opposite. Whenever I feel, whenever I feel like the world's worst investor like 4 years ago in the summer of 2002 or 4 years before that during the Asian contagion summer of 1998, those were actually great times to start buying. I see a couple dozen companies in our Rule Breakers Service now that represent compelling buys at today's prices. One solidly profitable technology company is off 42% since May 1st. While a biotech company, 25% off at its April highs, has the same deep pipeline for cancer drugs that it had at the beginning of the summer. Both of these companies are leaders in their fields but are in early enough stages that they don't have household name recognition. We recommend them for purchase today. Our scorecard has gotten hammered over the past four months, giving up most of our gains of the past year. But you're not investing over the past year, you're investing over the next year and the years to come. Rather than trade along with William O'Neill, who will help you avoid some losses but also cause you to sell yourself out of some great long-term profits, we have a different answer. Get educated. Get foolish about your money, find the best companies the stock market has to offer, build long-term positions, and ride out the occasional bad summer. It's when the everyday gross stock investor feels like he's the world's worst that investors sitting on the sidelines should sit up, take notice, and add a rule breaker or two to their portfolios. And now we return back to 2015. That was the 2006 Comm, just a few thoughts reflecting on that. First of all, those were each of the stocks that I did highlight at the time and Blue Nile, which I mentioned has not been a great stock in the nine years since. Tiffany, I think, has probably outperformed Blue Nile, I'm not looking at any stock charting system right now, but you could look that one up. I'm not sure Electronic Arts was that great an investment over those ten years. It's had a good last few years, but a pretty disappointing late 2000, 2008, 9, 10, 11. Netflix, Intuitive Surgical, Disney, those companies, all of which were hammered that year and that earnings season, making me feel like, because those were recommendations of mine, some of my bigger companies, some of the better known recommendations I'd made all had been hammered during that, that earnings season. And you could look it up, but they've had a pretty good run since August 1st of 2006. So we're not going to get it right every time. We're probably not even going to get it right the vast majority of the time, but this column that I just shared with you, which is one of my favorites because it's caused me to highlight the very human feeling of an investor like you and like me. We're all people. We are all subject to the same psychological forces that typically will focus us too much on the short term and typically have us looking backwards, whether it was a bad stock, your top holding that had a bad earnings, maybe even had a good earnings announcement, but it was treated poorly by the market, we're looking backwards too often and too often in the short term. And that's why I want you to know that I've felt that once again, this earnings quarter. I feel like kind of one of the world's worst investors, as I see some of my bigger recommendations, I wake up and I find out they're down 11% at market open. It happened enough this particular time that it's starting to make me a little bit bullish about 2016. You know, 2015 hasn't been a great market year, depending on the day of the week, when we're taping or where the market has gone since, it's about a break even year. So here in late November, the market's about where it started on January 1st of this year. So that may sound like not a bad year, but it is a bad year. The stock market averages about a 9 to 10% gain annualized. So we're a healthy number of percentage points underperforming the stock market average this year. It may well be remembered as a rather forgettable year for the stock market, unless we have a raging last six weeks. And you know what? That itself is part of the course of human events. One year and every three, the stock market, a very human system, the stock market loses value one year out of every three. So maybe that's what we had in 2015. And maybe a reminder that that disappointment you or I felt as we saw one of our favorite stocks get taken down once again by the market in this most recent earnings season reminds us that that too is normal and that looking ahead, it's probably a good sign. And maybe we can take some solace in that 2006 column that felt that in a much stronger way that I'm even feeling today and see just how well things played out. And I think we'll continue to play out into the future. All right. Next week, we're going to try something new. Here's the deal. Week on this podcast, it's going to be mailbag week. What I'd love is your questions, your best question. I'd love to answer it. Whatever's on your mind, whatever you're thinking might be about a stock, might be about a style or a strategy might be about this podcast, might be about the investment world in general. I'd love to answer it. And here's the challenge. We are taping next week's podcast this week because we're all off for Thanksgiving next week. And so you have by 12 p.m. Eastern this Thursday, if you're hearing it today as it comes out on Wednesday by noon tomorrow to get your question into us at RBI podcast is of course our Twitter handle. You just sign on to Twitter, reference at RBI podcast and ask your question. And we'll retweet out all questions we get and if you see someone else's that you really like, you could favorite that and that'll let me know that that's a question people really want answered. And this is a funny time to be trying our first ever mailbag because normally we're not going to have 12 hours of pressure, but the unique nature of United States holidays has us doing this. So think of your best question at RBI podcast. Drop it to us by noon tomorrow if you're in this on Wednesday and I'll take a crack at them next week until then. This is one of the world's worst investors, David Gardner, signing off as always people on this program may have interest in the stocks they talk about and the Molly Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at RBI.Fool.com. [MUSIC] [BLANK_AUDIO]