Because of what I do for a living (and because I’m a totally rad guy who’s THISMUCHFUN at parties), I spend a lot of time researching stocks. Normal people have fun hobbies. I do not.
I’m what the cool kids call a contrarian value investor, which is just fancy words that mean I look at stocks the rest of the market hates. A more apt description of what I do could be referred to as turd mining, really. I go on my hands and knees and sort through rivers of turds, trying to find the one stock that isn’t just poo.
Grossed out yet?
Most of these opportunities are eliminated pretty quickly, usually because of debt. It is the reason why at least 50% of stocks in the dumps are there. I start doing an analysis, realize the company is dead if earnings aren’t maintained, and quickly move on. Avoiding debt is very high on my investment checklist.
After looking at at least a thousand companies in my investing life, I’m proud to say I can get to the nuts and bolts of a stock pretty quickly. I know what’s important and what isn’t. And after spending an hour or so reading the annual report, I’m quite well informed. It helps to stick to smaller companies that are more easily analyzed.
Often, I’ll find an opportunity that looks good, is attractively valued, has a good balance sheet, and so on, but I don’t pull the trigger. Sometimes I’m waiting for a better price. Other times I might want to do more research or see what other investors think. And so on.
And you know what? Waiting costs me. Not always directly, although that happens a lot too. Waiting costs me because I don’t tend to turn up much additional information. In other words, my additional research isn’t yielding anything new. I’m just reiterating what I already know, which is a giant waste of time.
Don’t be afraid
Look, buying an individual stock can be scary. A small position for me these days is several thousand dollars. Unless your last name is Kardashian, that’s serious money.
I’ve had actual companies I own go to zero. Danier Leather went away. So did that stupid Chinese printing company I bought back in 2010.
But they’re the exception, not the rule. The fact is stocks tend to go up, and cheaper stocks tend to go up more than expensive stocks. I’ve based my whole investing philosophy on it, so it’s gotta be true.
I’ve missed out on some terrific gains because I liked a company. I just made excuses about why I shouldn’t buy the stock.
What’s the worst that can happen? That answer is simple. I lose all my money. I’ve gone through that before. I know it’s not that bad.
I looked at Freightcar America (NASDAQ:RAIL) right before the U.S. election at $11 per share. It’s $15.27 as I write this. Back in the day I looked at Coopers Park, which I passed on even though it was incredibly cheap. It was taken private at a huge premium a couple of weeks later.
I can think of more examples, but screw it. The point is that, usually, my stock picks work out. Sometimes they don’t, which is why I have a diverse portfolio.
Get to the point, Nelly
It comes down to this. It doesn’t matter what your afraid of. I guarantee it won’t be that bad.
My life hasn’t really been adversely affected because those two stocks I invested in went to zero. I don’t lose sleep over them. They haven’t impacted my ability to go on vacation or do other fun stuff.
Think about what you’re scared of. How bad can things really get?
Want to ask out that pretty girl? Go for it. The worst thing that can happen is she rejects you. I’ve been there before and it sucks. But you’ll get over it in a day or so.
Want to ask your boss for a raise? Be smart about it and rationally present why you should get more money. I do this all the time. At least half of the time I’m rejected. Oh well.
Humans hate losses. Studies have shown we’d rather avoid a small loss than post a big gain. This attitude is holding you back. It’s holding all of us back.
Here’s what I want you to do. I want you to just do the thing you’re thinking of doing, but just haven’t been able to quite have the balls to do it. Mine is investing in High Liner Foods, a stock I think is decently valued that I’d like to pay $17 per share for, not $19. By the time you read this, I’ll own a few hundred shares.
Post your results in the comment section. Conquer your fears. I want to hear about it.