Patience Is A Virtue I Normally Do Not Possess

2014 finished in a way that was quite disappointing.  In terms of the stock market, I have missed out on the majority of the gains in the S&P 500 since it was at 1500 or so and I have even bet against Amazon and the entire market along the way.  Clearly I have missed the mark.

I was just scanning Yahoo Finance and came across an article where Bill Ackman is announcing that he is in the money on his short of Herbalife.  If you are not familiar with the story, please take some time and look into it.  Ackman shorted the company by calling it a “Ponzi Scheme” as many reputable investors (Carl Icahn and George Soros) praised the company and bought shares in it.  The stock climbed from the $30 range all the way up to $82 per share, and I believe he had lost about $1Billion at that point.

But he kept insisting he was right.  EVERYONE said he was wrong.  He said “Nope, i’m right. You’re wrong.” Now, granted, the stock isn’t done yet. It could bounce right back up but right now, he is not only making money but he also feels vindication I am sure.

I’ve been shorting Amazon (AMZN) for over 2 years now and have been “wrong” because the stock is above my original short price.  I’ve shorted the entire market as well and so far, I’ve been wrong.  But there are bright spots.  Amazon went from a high of $408 and now it’s sitting under $290.  Not quite the darling it was just a year ago.  The stock market, overall, has had many jumps and falls over the past six months which are typical during the topping process.

I hope, and I’m confident, that I will end up being right, but patience, my most lacking virtue, is what I need to stick with and what most investors have a problem with.  We need patience.  In my other businesses, I want things done yesterday, but with investments, you have to give the time to let things pan out if your analysis is correct.  Even then, you will be wrong sometimes.

Everyone forgets the tough times during the good times and the good times during the tough times. That’s why sound financial analysis is important at all times.  Be patient for the opportunistic times because that is when true wealth is built.

Antoine Walker Went Broke – And He Blames Investing

Antoine Walker is well known for making $110MM playing basketball in the NBA and recently filing for bankruptcy.  Flat broke. Doesn’t even own a car in his name.  He has come out and been open about what happened and what he went through, which I very much respect and love to hear…but a bit of me has lost some respect for that story.

What I am about to say DOES involve some assumptions, but I want everyone to focus more on what my overall message is about what happened to him.

If you read this article and the video in it (–life-after-losing–110-million-214644672.html), he talks about his spending but during it, he also says that what really made him go broke was “bad real estate investments.”  But look at the other things that were said about his spending.  Multimillion dollar homes for his family members. Not one family member..but many. Flying around in private jets with 9 or 1o of his friends.  Losing millions in gambling at casinos.  Buying four or five cars for each house he was at.  Yes, real estate was probably the final nail in the coffin, but he was on the path to going broke LONG before that.  And then he blamed the real estate bubble that so many didn’t see.  I get it.  We don’t always see those things, but not because we don’t see them…we aren’t looking for them.  I won’t even get into that right now…

My point is, he spent like crazy and made some bad investments.  Even if his investments did well, was it likely that his spending would have been able to keep up? I don’t know but I seriously doubt it.  He made $110MM, but after taxes and agent fees, that’s $55MM.  He owned four or five multimillion dollar homes, so that takes about $20MM out of that number.  And when you lose millions gambling and then how much more does it cost to fly private jets and take 9 or 10 of your buddies on every vacation you go on as well as buying expensive gifts for all of them…you can do the math.

Bad investments can always cause a lot of problems. I would never minimize that fact. But to say it was what is what he really did wrong? I think that’s denial and try to run away from the all too common problem that athletes have…they just spend too much money.

Speculator vs Investor…again

I have written about this topic in the past and it is a constant sore subject for me.  Meeting many financial professionals is humorous because of their quickness to discuss how “financially minded” they are and all the “hot stocks” they are kicking ass on.  When I ask the simple question of “Why did you invest in that?” it can tell a lot about whether the person is an investor or a speculator.

You, as an “average” person, can easily find out which financial advisor is right for you by asking the simple question of “why?”  If the answer sounds like b.s., it probably is.  If they can’t explain, in normal terms, why an investment is worth it, it probably isn’t.  I am reminded of Enron and how the CEO and President couldn’t explain how they made money, and looking back, THAT is how everyone should have known it was a fraud.

The same way a CEO should be able to explain how they make money, your financial advisor should be able to easily explain why you are in a specific fund or stock.  If they can’t, run for the hills. After all, you can easily beat the stock market over time by just buying dividend paying stocks in the S&P.  It has been proven time and time again that just buying the dividend paying stocks in the S&P will beat the S&P handily over time (2%+ per year).  Why pay fees to someone who can’t explain basic fundamentals of investing to you when you can just invest on your own and beat the market?

Don’t be afraid to question.  When I get asked questions, it makes me happy that someone is basically asking me to prove I know what I’m talking about…everyone who has knowledge wants to show off their knowledge.  If they don’t have knowledge, they will get defensive and not be able to show you.  That will also be how you know they are a speculator vs an investor.  A speculator is someone who doesn’t have a basis for making decisions and they are basically just throwing darts at a board.  Can they be right at times?  Of course! During any bull market, like the one we are in now, anyone can look brilliant.  But those who follow the trends will lose when the trends fall out of favor, which happens when markets turn and it gets ugly.  Don’t follow that person.  It can be hard, though, when the herd is your buddy at work or your neighbor bragging about their 35% gains last year.

Oh, and the stock market is still vastly overpriced.  Still waiting for my 40-50% bear market. In case anyone forgot.  And if you asked me why I think that, I would have many logical answers.  Because I’m not afraid to have the answers.