Evolving As An Investor

Jason’s Random Words

Jeff is starting to grow up. Over the past three years, he's shifted from a guy who's making $5 bets on penny stocks to doing deep dives, reading financial reports, and making "big boy" investments in real companies. We often joke about the size of his individual stock portfolio compared to mine (remember the majority of his wealth is in index funds in retirement accounts, not individual stocks) and the reality that I have had single days where my portfolio has fallen or gained an entire "Santoro."

The point? First, to brag that mine's bigger than Jeff's (we are both decidedly adolescent) but more importantly to talk about the importance of evolving and growing as an investor. Because as much as Jeff has grown over the past three years – he's figured out what it took me the better part of a decade to learn – I have as well.

And I've learned that I am a lazy investor, except when I'm not. What sort of double-talk is that? Let me explain.

I am notoriously glacial when it comes to selling. I will hold a mediocre stock for years and do nothing with it. Eventually, I end up "pulling the weeds" when I take a closer look and realize the business hasn't earned my capital. But it also means I don't end up missing out on great companies that just need some time.

I'll cherry-pick one example: MercadoLibre. I bought my first shares in April of 2014 and accumulated most of my initial position within a few weeks. Over the next year and a half, the stock would rocket up 50% before giving back all of those gains. A more impatient investor would have sold and moved on, maybe sold during the initial runup, "taking profits" and avoiding the selloff, and looking like a genius at the time. But I was lazy. I held. That initial investment has increased in value by about 14X. I'm happy to look short-term dumb and to be long-term right. Of course, I didn't just pick cherries, I also planted some weeds, many of which I have "pulled" by now. That 14-bagger in MercadoLibre was the result of some luck (someone else recommended it to me, I didn't find it on my own) and some laziness disguised as patience. And some learning about the company that helped me build my own conviction rooted in what I knew, not what someone else said.

This aspect of my investing personality is basically the same as it's been. I've generally always been slow to sell.

So how have I evolved? I've learned to recognize my not-lazy proclivities and build a framework to keep those behaviors in check so they don't mess up a good thing. One of the reasons I keep 5% (and increasing) in cash in my portfolio is to give me money for when I decide to meddle. By having a little spare cash when I occasionally decide to go on a stock-fishing expedition, I won't sell part of a big winner like MercadoLibre – which is now my biggest investment – for play money. It also means I have cash to put to work when there are "real" opportunities like the bank stock selloff earlier this year, and during extreme events like the pandemic stock crash in 2020.

Most importantly, I have developed a framework that helps me make decisions, and apply a level of discipline that I quite frankly didn't have in my first decade as an active investor. I've said it before: Successful investing is as much managing yourself as managing a portfolio. Watching Jeff's growth has helped me take a closer look at my own progress. I'm still a lot better at this than him.

Jason

Jeff’s Random Words

So Jason’s post got me thinking about my own evolution as an investor. But first I would like to highlight that he admitted it took him a decade to learn what I learned in 3.5 years. I’ll leave the rest of the childish nonsense to Jason (I say while pretending to be above the fray).

I’ve been a proponent of starting small when first diving into buying individual stocks. What “small” means is up to each investor, but I’d suggest it be an amount that it won’t hurt to lose. I started with $50. No, I didn’t forget a zero. Fifty dollars. I also started on Robinhood because my wife said “I heard Robinhood is good”. That was the beginning. $50 and a tip from my non-stock investor wife.

I learned a LOT in those first several weeks. I was fascinated by the movement of the market and probably checked the app like 400 times a day. It was dumb, but it was illuminating. Because Robinhood didn’t offer fractional shares yet, I was basically buying penny stocks in order to make by small amount of capital go as far as possible. I was also using things like what the Robinhood app recommended, what was “hot” or what “analysts” called a “buy”. Again, dumb. But again, illuminating.

As I look back, this was the perfect way for me to start. But that’s me. I was a dude in his early 40s who had been investing in retirement accounts for almost 20 years. I knew the market went up and down but that over time it trended up and helped me build wealth. What I wonder is how 21-year-old me would have reacted. I don’t know the answer to that, but I can totally see how less experienced investors get sucked into trading, speculating, and even gambling, with their brokerage accounts.

When I read what Jason wrote my first reaction was that I really haven’t evolved that much. But then when I think back to February 2020, I realize I have. That’s not what matters. What matters is that I am not done learning and evolving. That’s the point of this rambling diatribe. I feel like I’m simply further along a journey to becoming a better investor, but it’s a journey that has no end. And I like that. I also like that I’m a faster learner than Jason. Let’s not forget that…

Jeff