Want some advice? I don’t give it. The SEC, state regulations, and respect for professionals suggest that if people want financial advice they should go to certified financial planners and such. (Have you met Mike Brady?) I’m not even an “and such.” I’m simply a person who sees the opportunities in the stock market, has usually benefited from them, and am unfortunately currently out of synch with them. Okay, I also wrote a book about my style of personal finance, Dream. Invest. Live. But I don’t give advice. I do, however, ask people questions and let them answer for themselves. An answer that comes from the inside is far more valuable than one from the outside.
A friend and fellow investor asked me about some of the stocks we have in common: AMSC, DNDN, MVIS. So they asked me, “Should I buy more?” And they know me, so they knew to interrupt me when I started to respond with, “Well, I don’t tell anyone else what to do.” So they rephrased the question. “Tom, if you had the money (and they’re sensitive to the fact that I don’t), would you buy more?” Allow me to rephrase the conversation into something more general. The stocks are down. Is this the time to buy low that leads to selling high? And of course, only people from the future know for sure. Every response comes out as a dodge.
Would I buy more? Me, personally? Yes. No. Maybe.
If I was working from discretionary capital, money I could afford to lose, I’d return to my standard criteria. I’d look for companies that are in positively disruptive businesses, expected significant revenue growth, and that have little or no debt. I’d check “the present value of future revenues discounted for risk” and compare that to the current market cap. If it looked like a deal, I’d consider buying. The general market is recovering, but I know of many small companies that have been overlooked. I’ll paraphrase the CEO of f5 Networks (FFIV) from a stockholders meeting he chaired after the internet bubble burst. He wasn’t allowed to directly comment on the company’s stock price, but he did offer this insight. “Given conventional business measures in a normal market environment our earlier valuation was higher than to be expected. Given conventional business measures in a normal market environment our current valuation is much lower than to be expected. We can not say if conventional measures or normal markets are applicable anymore.” FFIV had gone from over $100 down to $3. I bought along the way and rode it back to $40. It is now trading at $100, but it split, so its pre-split equivalent is $200. Maybe now is just like then, or maybe not.
My money is so tight I’m staying home more, using the bicycle instead of the car if I can, and enjoying Netflix instead of the local $7 theater. And yet, I am delaying bills as long as possible because the optimist in me knows that, if I am right, the stocks will eventually recover, and that frugality and time are my greatest tools. An extra week can mean a lot to a stock price. That hasn’t worked well, but MVIS’s recent movements are encouraging. It is up about 150% in the last few days. Three more weeks of that and I am back to break-even. Three more weeks beyond that and I am almost back to enough. Hey. It could happen. Please?
If my house, my home, sells for the listing price, I’ll be able to pay off the mortgage and the credit card, and have about a year’s living expenses. In that case, I’d probably put some money back into the market. I also played an interesting mind game with myself. What if the house sells for enough to pay off the mortgage and a year’s living expenses, but not the credit card? The credit card rate is double digit. I expect the stocks to return better than that because they are so low (relative to my guesstimates). Simple arithmetic suggests that it makes more sense to put the money where it generates the highest interest rate. Yet, even then I would balk. Maybe I’d put some in the market and pay off some of the debt. I won’t worry the details because the question is moot until the house sells.
If or when the house sells. If or when I get a job. If or when my investments recover. If or when my business becomes sufficiently profitable. If or when some combination of those IFs and WHENs, and as I wrote recently there are too many of them for me to realistically contemplate. (Too Many IFs) If the house hasn’t sold, I haven’t found a job, my investments haven’t recovered, and my business isn’t profitable are an unlikely set of circumstances; and yet that it is where I sit as I type. That’s gotta change. For now, I won’t buy more. If the house sells, and I find a good job, and my investments recover, and my business becomes sufficiently profitable, then yes, I’ll buy. I’ve been investing since about 1978. This is only the second time my portfolio has so drastically slipped and the only time I’ve simultaneously been blogging about personal finance. As I type this I realize that it would be surprising if a typical life didn’t have such an episode or two, except for the blogging part.
I had a different question for some of my friends who are interested in buying more. If the company succeeds, and the stock reflects that success, do you already have more than enough shares to be worth more than enough? More is not always better. Sometimes the peak of happiness is at enough. And if there remains a compulsion to buy more, then maybe buy more of something else. Diversification is a good thing, and I can attest that more diversification is better. My portfolio had twelve stocks in it, but as this episode has played out, I’ve had to sell, and now the portfolio only has six. Each of those was a possible “enough”. From where I sit, having more chances is better than finding every one of my remaining chances looking too chancy.
I remain a fan of investing. I know the market is less than pristine. But fundamental to the American culture is the ability for anyone to participate in wealth generation through investing. And fundamental to our species is continual invention and innovation that can produce a better world. I may not have the money right now, but I’ll buy into those ideas and ideals. Would you?