A Cautionary Tale.

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by Mr_Find_Value

I’m posting my (short) story to hopefully save people some money.

I always knew I wanted to be an investor.

When I joined the military the classes I paid most attention to were the personal finance ones. My first paycheck went right into my savings, and I built up quite a reserve during my time in. High five figures, which wasn’t easy over 4 years on a junior enlisted salary let me tell you. When my buds were buying new cars, I was saving my paychecks. When they went out and partied and bought shots I stayed in and studied investing, I mean looking back I should’ve lived a little but that’s not the point of my tale.

I forewent 4 years of revelry and fun to pile up as much cash as I could and plan for life after I got out. I read book after book on investing, finance, portfolio theory, Warren Buffett you name it.

After reading enough material and studying for long enough I even thought of myself as somewhat knowledgable. I’d learned DCF and was already prospecting positions while I was in.

So I started investing in 2015 and 2016. I used principles I’d read Buffett endorsed, low PE, worked within a DCF model. I mean I really took my time with these positions. I’d come to think of myself as somewhat of a principled value investor.

Then the worst thing that could have possibly happened to a first time investor happened: I was successful. Within 5 months my first two investments had gone up nearly 30-40% (Emerson Electric and Nucor Steel for anyone curious).

I felt like the king of the world, like I was way smarter than I was. Finding solid companies with great moats and low PEs and worked in a few models was easy. People who invested in index funds were chumps. They weren’t smart, they were lazy. I was the smart one picking individual ‘value’ stocks and being diligent. I even started looking up returns if I could just sustain that 40% return for the next 10 years. It was all great. If I could do it now why not in the future? Life was good.

I could spend the next 5 paragraphs outlying all the other positions I’d initiated because they were ‘cheap’ and had low debt. How I was finding value where others weren’t (ironic given my name, huh?). But I’ll forego it all to say that I wasn’t nearly as smart as I thought I was, and that my returns as a whole have been meager.

All in all, if I’d just parked that high five figures in an index fund like Vanguard’s S&P 500 fund, VOO, I’d have around $40,000 in unrealized gains. Instead I have $5,000, about 12.5% of what I could have. Not to mention the stress, self doubt, anxiety, and swings that come with individual stock picking.

I don’t tell you my (short) tale because it’s interesting, or even uncommon. I tell you because I wish that I’d seen this post all those years ago when I started investing (as if that would have stopped me anyways), but hopefully you will be smarter than I was.

Stick with index investing, be a boglehead, do the tried and true. Boring wins, and I think it will continue to win. The simple fact is that no matter how many books you read or approaches you take most of us just can’t be Warren Buffett. We can’t be stock pickers. So save yourself the hassle and don’t be like me.

I admit defeat. I hang up my hat. I’m not a great investor and I’m not all that smart. Thank you for taking the time to read my post.

Big Edit: Should’ve put in Original Post; I’m still holding most of these positions. I haven’t sold for a loss (or minor gain) yet, as I bought most with the intent to hold long term and still will do so. I’m just hanging it up as an individual stock picker. All future investments will be into index funds. It’s the approach that suits my temperment and intellect (what of it I have), the best.

 

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