The first edition will be Investing in Public Equities is Like Dating. Here's the idea: During one of the many rocky periods in a particular personal relationship, I remember asking my parents (married for 25 years) whether or not they had ever gone through tough times when they were starting out. Their basic answer: Relationships, despite what your girlfriend just told you, aren't supposed to be "work." "Work" is supposed to be "work," hence the name. When a relationship is right there won't be a lot of analyzing, discussing, and dissecting every aspect of the relationship as if it's a third, independent entity.
- In fact, finding a promising investment thesis is similar to meeting a new girl who might be dating material. Examine the similarities:
- Is she truly interesting? Can she take a joke? Does she come from a decent family (i.e., just how crazy will she be later in life)? Is she good looking all the time or only in dark bars? What do your friends think of her?
- Does the management team know what they’re doing? Does the company have sustainable barriers to entry in their key businesses? Is the company well positioned for the next 3-5 years? What do the company’s customers and suppliers say?
- Sometimes -- ok, a lot of times in Mr. Juggle's case -- things just won't feel right even when the answers to most of these questions are positive. Just as a relationship can lack chemistry, a stock can look promising in theory but fail to perform. You will find yourself constantly justifying the stock to your friends, talking about how great the company is and how the chart is smiling at you. And much like your first relationship that you dragged on far too long, you'll be tempted to "work through it" and stick around. Again, examine the similarities:
- I'll put more effort in our relationship... Ok, I'll try to change... I'm sorry...
- There was no operating leverage but we'll see it next quarter for sure... They've assured me they have the financing in place.... The investment period is almost over...Management has a lot of "skin in the game"....
Now the reason I think relationships are a particularly good analogy for investing is that it's just as tough to know when you should cut your losses in a stock as it is when things go south with your girlfriend. You’ve been through a lot and there’s a shared history; is there something fundamentally wrong or are you just being impatient/unreasonable/(insert common male or investor characteristic here)? Finding an investment thesis is at least as hard as going back to dating, and you never want to bail on a good idea early. So ask yourself: the stock isn’t working but is this a healthy argument with your future wife or maybe you and the stock are fighting again because things just aren't right between the two of you. Does the stock want you to "work on it" or "pay attention to its needs" more often? These are probably signs you should set cut that stock loose.
But don't think it'll be easy. The day you finally give up on that stock - it'll go up 5%, just like your ex-girlfriend will wear a short skirt and slut herself around showing you how many other boys like her. But your better off man, you are way better off.
Recommendation: Long book writing, short dating.