"...it is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference. They just don't seem able to grasp the concept, simple as it is."
-Warren Buffett, from "The Superinvestors of
Graham and Doddsville"
I am definitely the exception that proves the rule in this case!
My journey started typically enough, in a financial planner's office in Virginia Beach in 1994. It was there that I bought my first mutual fund, Fidelity Destiny II. Although I broke almost every rule imaginable when buying the fund (it has a HUGE sales load), two good things came out of this - a regular savings discipline and a stimulus to look further into the investing world. I was VERY intrigued by the concept of compound interest!
I started reading popular books about investing and personal finance, such as good ones like Peter Lynch's Beating the Street, and worse (but still useful) books like Charles Givens' Wealth Without Risk. (I can now tell you that this title is an oxymoron!) Although I still didn't know enough about investing to put my money into individual stocks, I kept dollar-cost averaging into my fund, which was rising nicely in the current bull market.
Then, things started going a little wobbly. I recieved one of those infamous mailers from a certain Mr. Ken Roberts, advertising his commodity trading courses. I was hooked! I started doing all of that crazy math using 100% compound annual growth rates, and envisioning what carpet I was going to put in my mansion. Much to my wife's chagrin, I also plunked down the $250 or so for the course. Luckily for me, I didn't do any lasting damage! I "paper traded" his strategies for a few months, and realized that, for my account size, his strategies were suicidal! Since I kept good records, I was able to get my money back.
However, I was still hooked on this urge to follow the arcane price patterns on stock charts, to try to generate profitable trading strategies. I bought books, studied charts, wrote computer programs, and had some successes and some failures. The important part of this was that I never risked a single dollar, which probably was my saving grace! Something didn't sit right with me about all of this, and I almost cured myself...
About 1999 (at the hight of the bubble) I read The Intelligent Investor on a single two-day business trip. What a book! Everything that it said was in direct opposition to the conventional wisdom at the time. What a great strategy! Buying something for less than its value! Too bad there wasn't anything to buy (although I later found out that only the "big names" were wildly overpriced. A traditional value investor would have found a lot of oppotunity in "boring" small cap stocks.) Like I said, this ALMOST cured me...
I could no longer stand the wild overvaluations of stocks in my mutual fund, and I cashed out most of it in late 2000, just as the market started to tip over. Great job! So what did I do? (You may have to read this next sentence a few more times for it to sink in.) I took $5,000 and bought a neural-network powered commodity price prediction program!!! Yee-haw!! I can't miss!! This is it! This is...oops! Not only did I spend 25% of my portfolio on this software, I promptly lost another 30% trading its strategies! Like someone who burns their hand on a hot iron, I quickly cut my losses and emptied out the account.
Sometimes it takes a traumatic event to set you on the straight and narrow, but that really did it. I picked up my copy of The Intelligent Investor, and read it again, and again. I then read Common Stocks and Uncommon Profits, almost every Berkshire Hathaway shareholder letter, Warren Buffet's biography, One Up on Wall Street, and other outstanding books.
Not only do I have my feet firmly planted on the ground, but I actually enjoy the treasure hunt of finding undervalued companies, and have committed to starting or working for a fund that espouses these principles. This weblog is a way for me to develop my thinking and show my work to the rest of the world (and maybe help a few more people see the light!)
