Mr Market, Google, Amazon discussed on Invested: The Rule #1 Podcast
Okay so I'm going to give you. An example of a company. Bought was exactly that situation all right because I I do occasionally and it did go into the risky Biz portfolio. But that's Google so it came public. I don't know just under a hundred bucks or something something back in the day and I didn't really understand it so I didn't buy it at the IPO. Even though it had several years of track record was cash. Low positive is it if I bought it at two hundred so I bought it after it had already doubled once so he was at its historical high and I still bought it. So this is the exception that proves the rule in my view is that this is this was to me a pretty easy call because I use their product a lot and I came to understand it and I think understanding it was not something a lot of people had done yet. They didn't understand how it's business model worked and it was so new that it didn't fit the criteria for a lot of what fund managers put money in. So there's the exception all right. I'm I'm okay with that exception I could figure out Google and I still love it. It's still an amazing company. I couldn't figure out Amazon and neither could Buffett and Munger too hard even though some Wall Street people did all right. I couldn't figure out what they screwed up on that one. Yeah they screwed up on it. You're GonNa have to let some stuff go. You're going to realize that we screw up a lot more than than we want to say but our screw ups are are errors of omission. We don't do something we could have. Maybe done those are screw ups. I can handle. I don't mind not making money on something I wasn't sure are about even though it goes up and I'm telling you I have to deal with that all the time my my analysts will pick something and they'll look at it and they'll go. This is going to blast off. If I don't I don't get it. I don't buy it and then doubles right and I'm just like well. That's the way she goes when you're following this strategy of six inch bars you're GONNA have companies. You didn't buy into that took off. Yeah we did talking about that. I'm so so. Unity grasping has been. Are you agreeing with me here. That as basic strategy if that thing hasn't had an event that creates fear you're in all of those analysts as they jockey quarter to quarter for. WHO's the best within event? That's going to last a year to three years. It's GonNa kick almost all the fund managers out of that business because they don't want to be in it for a year of losing money. They are going to go and when they do. Then we've got something. It's more of a of a six inch bar. Not all of them are six bars but enough of the mar that we can make an incredible rate of return by being patient. And I'm not trying to be better than Mr Market at picking high prices and saying that they're on sale. Yeah I mean I agree. I also so think that there are a lot of companies that have been have been underpriced at points at which They may be didn't look underpriced. And I find those intriguing well. Yeah just don't intriguing into your portfolio. I mean this is. This is to to our our to our whole population of investors. There's who have a huge range of skills and a huge range of of Different kinds of passions and things are interested in that the basics of our style of investing are so fundamental. And if you stick with him you are going to get rich. There's no way you won't it's stepping out of the boundaries of of of our skill set. That's what gets you losses and the violation of rule number one where you think you know the thing is that high price but you think thank you know. What's on sale all right? So if you're GONNA do that sort of thing going to jump in and buy something you think is on sale Even though now the market is screaming that they don't think it's on sale just at least take a step back and be humble for a moment and say. Wow maybe be. There's something going on here. I don't understand. Maybe they know stuff. I don't know because they've got contacts in New York and they've got friends everywhere and they talked to venture capital guys who've whatever right. They totally are networked in ways. We aren't very different thing from being smart. It's it's just different information. It's an information symmetry. The point is that this whole thing about like how they are smarter than us is like so contrary to the whole thing of their dumber than us and therefore they miss price stocks. All the time and I'm just this whole sort of dichotomy constantly like who's smarter and WHO's dumber. I just feel like it's kind of silly and it's really about the amount of information that people have. I I think you and I and a lot of people listening to this. PODCAST are very smart and if we put our minds to it we can do this That's what I've learned and this idea that like these mysterious faceless. People are like dumber smarter. I just don't find that useful. But maybe maybe it's tasteful to other people. Well I think it's very useful. I think you should really listen to your dad really and be a little humble Lina situation to all the same schools. You're not intimidated by all these Ivy League. My Point my point is that you started out my education. Shen telling me that those people were dumb and we spent like a year debating whether or not they were dumb. I was arguing for their intelligence. And now so you're telling me they're really smart not trying to argue for their dumbness. But I'm trying to say we are just as smart well. I'm pretty sure sure I've never said that. Those Harvard graduates are dumb. A pressure teeth. Reassure her her in the context of fear they do dumb things and that's very different. Now I distinctly remember you say the people must be stupid. Why else would they do what they do if I said it it's hyperbole because I know they're smart people? It's just that fear makes people do dumb things. It really does not right. I mean when you don't have to be doing something you do it anyway or as we spent a bunch of time talking about it's not it's not dumbness or smartness or fear even or our bravery or whatever it's it's different incentives than what we have and I think actually here again I would would make the same point so in this situation. What you're saying is that people who are professional in the finance world tend to have maybe more sort sort of scuttle but talk on the street type of now you've got me using the word scuttle but scuttled the talk on the street type of information of like Oh so and so it was going to quit? But you know we're like Won't be at the company next year for whatever like gossipy reason and we who are sitting in our houses on Main Street. Don't have that information which is totally correct and again it's just different As an asymmetries instead of being incentives it's information mission and I think that that's really important to acknowledge and actually I'm really glad we're making this point that there is different information From what from what I have you know sitting in my house looking at the Internet and reading newspapers compared to To somebody on Wall Street it is different and sometimes times that information makes them act in your words dumb because because they go and they make decisions based on some week weekly thing or monthly thing or quarterly thing and sometimes it makes them take decisions that are in your words smart because it makes them. I'm not buy into a stock where the CEO's about to quit and And just being aware that that information is different I think is actually really important. I'm really talking about it and having a bit of an Aha moment right now. Okay so you could have this that Ben Graham so many years ago ninety years ago made an incredible sort of had incredible insight And that incites said that in the long run the stock market is away in machine. It is GONNA properly value each company but in the short run. It's a voting machine and by that he meant it's about momentum and emotion right in the short run and and so we know that because of momentum emotion momentum momentum down it can be momentum up an emotion is fear and greed the short run pricing on stocks can badly off of their value. So we know this is the general thesis that we follow as ruler investors. That stocks could be badly off of their their actual value for some relatively short period of time and over the relatively long pretty time. They're going to be properly balanced. They're probably priced. Which is why I think you you emphasize so much? The historical high part of that. He's exactly right because if the company is historically not gone above this price point ever and there's no visible event. Then where's the emotion coming from. There's no momentum carrying it forward forward at this point because it's peaked out. It's all been momentum to this point. Where's the emotion? Where's the fear? and where's the greed. It's drained out of the market and when it straightened out of the the market you're GONNA be looking at a company that Mr Market is looking at pretty objectively and it may be priced properly. He maybe Aby Wayne that company actually pretty properly for what's going on there so I really think we should wrap this this around a bit but I would love you to think more seriously. Disley take it more seriously that if you really don't identify the fear and the event that's driving the fear be very very careful. Roll before you pull the trigger on a company where it doesn't have that I've just written down for myself which I think might make it onto my checklist. Where is the emotion whereas the fear? Where's the greed? I'm not sure I've actually pinpointed like that. That angle to it. It's like. Oh what's the event what's happening with it. Why do you know whatever ever Blah Blah Blah but not like? Where is it like if you're looking at a company that's just been on a really lovely steady upswing whereas the emotion? It's like you're right there isn't there's no fear there's no greed is just sort of everything's great. Everything's good Except that accept that. Maybe it's not because Kerr not pricing higher. Well we got another question. Yes we next time another quick question. Yeah we're GONNA knock five or six of these in one shot but we don't so the next one I think is really cool and it's a really good question about Public companies in bankruptcy. Yeah all right so we'll be back next week with that and thanks everybody. Thanks for bearing with my brain fog. It'll probably be here for another few.