After thirty years as a professional investor I have heard just about every cocktail party stock tip or market timing success. With their hand wrapped around a highball, everyone’s a winner.
Were that it were true. But it’s not.
Important for us to remember is that no investor or investment discipline can be right all the time. If we were to listen to every hot tip advocated by friends or acquaintances, we would likely chase our tales right into bankruptcy. So what is an investor to do?
First, consider what kind of investor you are. By that I mean: what kind of investing suits your temperament? Are you, for example, an early adapter? Did you own the first iPhone or iPad or are you first in line for the latest new movie release? If so, you are likely to be comfortable buying growth stocks. Growth stock investors are less focused on the price of the stock than they are the price momentum of the stock.
Value stock investors, however, are more reticent and conservative by nature. Though not necessarily risk averse, value investors wait for products or companies to become established before they jump in. If you still carry a flip phone you are likely a value investor. Or if you drive your car, as I did, to the point of deafening rattles and yards of electrical tape holding the side-view mirror in place, you are someone who is less concerned with the latest trend and more concerned with obtaining value.
Both growth and value stock investing can be successful. The fabled Peter Lynch of Fidelity’s Magellan Fund was the epitome of a successful growth stock investor. Warren Buffett is the quintessential value investor. Both have made billions of dollars for their respective clients. And both have implemented strategies that are compatible with their personalities. As should you.
Once you understand your investing bias (growth or value), do not stray from the kinds of stocks you are comfortable holding. It is unwise for us to act against our nature in general and particularly so as investors. Discipline and consistency pay off in the stock market. Consider my Intelligent Investing Rule #1: Having any investment discipline is better than having no discipline at all; once your investment strategy is established, never deviate.
But if you do fall off the wagon, don’t give up, get right back on and stay the course.
Next post we will explore two specific valuation disciplines you can employ in your own portfolio.