December 22, 2010 § Leave a comment
When you are investing you can both be smart and stupid at the same time. It’s kinda like being an idiot-savant but with less games of chess. But you can’t be both wise and foolish. I learned/still learning this the hard way.
I’m a bit of a crisis guy. I like when things get all crazy, people get all squirrely and big irrationalities begin to form (people bailing on good positioned businesses, a crisis being touted as zombie apocalypse etc.) I like them because the irrationalities (and therefore opportunities) are easier to see then opportunities buried in the numbers. Mainly it’s a laziness/time issue. It’s a lot easier to see that BP is undervalued at $26 as its pumping dinosaur-juice into the gulf and people are setting up fake twitter accounts then it is to see that (for example) Microsoft is constantly increasing its dividend while trading at a fairly low valuation. The only thing you need to keep in check is your emotions. (Edit: I also like crises because I’m a young investor and that’s all I’ve ever known!)
And that is where the “stupid” of the “smart-stupid” comes from. Emotion. Getting jacked up about this potentially exciting and profitable devaluation and jumping in at way the wrong time. Thinking “hey, everyone is being irrational and way underselling this guy; I’d better get in while they’re getting out” while not waiting for people to stop being irrational and selling. I am learning this the…uh…very real way from my position in National Bank of Greece (NBG).
Warren Buffet famously said about market crashes, that when the tide goes out you get to see who was swimming naked. One of the big wet shiny bums from this crisis was the bad boys of the EU–the so called PIIGS (Portugal, Ireland, Italy, Greece and Spain.) These were the countries who either fudged their books, borrowed more than they could sustain, or, in Greece’s case, did all of that including an entire population paying their taxes with shrugs and grins. Michael Lewis did a fantastic piece about it for Vanity Fair.
Unlike the American credit crisis–which was mainly bank led–the European Sovereign Debt Crisis was more of a government led crisis. Now, obviously, when the money dried up and the skinny dipping Europeans were revealed in the bright sunlight of shame, stock prices reacted. Bank shares dropped like crazy. And when things dropped like crazy, I took notice. The National Bank of Greece was on my radar pretty quick. When it was down about 60% (from about $8 to $3) I decided to buy.
Let us travel back in time to speak with Then-Graeme about his investing thesis:
Now-Graeme: So, Graeme, what is your reasoning for buying NBG at this time?
Then-Graeme: Man, this bank is taking a pounding and it’s kinda not really their fault. They’ve even managed to pass a stress test and creepy-China has even said they will prop up Greece. When sanity returns, this bank should be the best bank in Greece.
It must be said that Then-Graeme was still pretty new at this whole thing and he didn’t know how to value a financial institution. Actually, Now-Graeme has that problem too. But still, I felt it was a good thesis then.
(And it still is now, as far as I am concerned. But currently that’s not really the point.)
This is where my good friend stupid comes in. I felt that I needed to be part of the action. Needed to get my position in the game. My thesis was sound for an investment, but I ignored the very important “when sanity returns” part of Then-Graeme’s reasoning. So I bought in the summer around $3 but the craziness has continued (with Ireland) and NBG is now sitting at a very frowny $1.74. Brutal. I mean, heck, if I held off and bought now I could have had double the shares. But instead I have a big red double digit percentage looking at me every time I log in to Yahoo! Finance.
So you can have a thesis you believe in (The Smart) but act before you’re ready/before you’ve thought it through/before the craziness is over (The Stupid) and that costs you in the end. It just remains to be seen if the Stupid or the Smart will win in the end. I’m fairly confident that $3 was a good buy price, but $1.74 makes me sad because it is a stellar buy price. Now the biggest decision on my plate is whether to put more money into the position or seek out better value plays (or hold on to the cash.)
What you can’t have both at once is Wise and Foolish (the bad kind. Not the awesome fool.com kind.) What I am in constant search for is to build up the wise and tear down the foolish. But you only learn this by doing it yourself (or, you know, read blogs.)