Most of the time in Money & Markets, I tell you what I think you should be doing when it comes to your investments. But today, I want to tell you about three things that you shouldn’t do.
I’ve had a lot of investing victories over the years, but I’m far from perfect. So I want to revisit three lessons that I learned the hard way. It’s not that I like eating humble pie … I just want to give you an opportunity to learn from my past mistakes.
Mistake #1:
Ignoring the Smartest
Retail Analysts in the World
Even though I don’t feel old, my receding hairline and expanding waist are telltale signs. It’s also become obvious that I’m not on the same page as my children when it comes to music, fashion, or the latest slang.
We’re totally different when it comes to our spending habits, too. Sure, in my 20s and 30s, I cared about the car I drove and the labels on my clothes. But since then, I’ve become more concerned with planning and saving for retirement. I suspect a lot of other people my age are in the same boat.
As an investor, however, it’s important to stay attuned to trends in consumer spending. After all, it accounts for roughly two-thirds of our country’s Gross Domestic Product.
I used to give too much credence to retail analysts on Wall Street (other old farts). At the same time, I was ignoring the best retail analysts in the world — my children.
No longer! Heck, my kids have nailed dozens of major retail trends and identified some of the most profitable stocks you could have owned. Three examples:
Apple Inc. — My kids started begging for iPods in November 2005. The devices were more than $300 each, and I didn’t think people were really going to pony up. But my “child indicator†was right on the money — iPod sales soared. Apple was trading in the mid-$30s and has roughly tripled in price since then.
Under Armour Inc. — Temperatures in the fall can get pretty cold in Montana. But when my 14-year old asked for what seemed like extremely overpriced long underwear, I laughed at first. Then I dug a little deeper and found a great company. Under Armour has more than doubled since it went public in December 2005.
Nintendo Co. — Much to my chagrin, my three boys are little video game addicts. My daughter never showed any interest … until the Nintendo Wii came out. That was yet another buy signal. Nintendo has rallied by almost 50% since then.
Now, I’m glad to say that I recommended all three of those stocks to my subscribers, and we’re up on each of them. But how much money did I leave on the table by not listening to my in-house retail research sooner?
By the way, you can learn from a lot of people around you, not just kids. Pay attention to what your neighbors are buying and wearing … what your employer purchases … and what parking lots are always jam packed.
Mistake #2:
Fishing in a Small Pond
There are a lot of reasons why I love living in Montana, but one biggie is the fishing. I’m lucky enough to live on the largest natural freshwater lake west of the Mississippi. It’s filled with the kind of trophy fish that you just can’t find in a small pond.
But when it came to investing, I used to stubbornly fish in a small pond — the U.S. stock market. Why? Because it was the most familiar body of water.
Then I made one of the best investment calls of my life by telling people to sell their tech holdings in October 2000. That’s when I started really motoring my investment boat over to the biggest trophy lake of all: Asia.
I got there before a lot of other investors, and I’m glad I did. And for my money, the fishing is still great! Consider this: The U.S. market enjoyed a productive year in 2006, but markets across the Pacific went absolutely bonkers.
Take a look at my table and you’ll see just how well five different Asian markets did last year — on average, they gained 79%!
Mistake #3:
Getting Ants in the Pants
| Country | Index | 2006 Return |
| Vietnam | Vietnam Stock Index | +144% |
| Shanghai | Composite | +135% |
| India | Sensex Index | +47% |
| Hong Kong | Hang Seng | +38% |
| Singapore | Straits Times | +32% |
One of my favorite books of all time is Robert Fulghum’s All I Really Need to Know I Learned in Kindergarten. Fulghum is a Unitarian minister who preached a simple message: Wisdom is not at the top of the graduate school mountain, it’s in the nursery school sand box.
Fulghum is absolutely right! Rules like “play fair†… “don’t take things that aren’t yours†… and “clean up your own mess†will get you pretty far in life. Even in investing, one of my best lessons came from my wonderful kindergarten teacher, Mrs. Scoggins.
I was one of those kids who could never sit still. So whenever I misbehaved, instead of scolding me, giving me a swat, or sending a note home to my parents, Mrs. Scoggins would make me sit quietly in the corner.
At first, I failed to apply that to my portfolio. Because when I was starting out in the investment business, I traded like a wild maniac. Soon enough, I realized that overtrading was both unproductive and costly.
Today, I sit quietly and watch my money grow. The key is buying the right companies — with strong fundamentals, good sector trends, and in the right countries. Once you do that, you’ll maximize your profits by ignoring the short-term gyrations.
Learn a lesson from Mrs. Scoggins: Even though it might be uncomfortable at times, sitting still is often the best medicine.
So remember, if you’re looking to pile up big profits, you’ve got to do three things:
First, look for the big trends, especially those that are right under your nose!
Second, make sure you’re fishing in the biggest pond you can find — the markets with the best growth prospects and the most interesting opportunities.
Third, buy the best companies you can find and then sit tight.
Best wishes,
Tony
About MONEY AND MARKETS
MONEY AND MARKETS (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Wendy Montes de Oca, Kristen Adams, Jennifer Moran, Red Morgan, and Julie Trudeau.
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