This week, I learned a valuable investing lesson that caused me to miss a great opportunity in the market. Luckily, this lesson did not result in a realized loss like lessons in the past, so I can’t complain too much. However, I did miss a golden opportunity to capitalize on Mr. Market taking a crazy turn (even more so than a few months ago). What lesson did I learn and how will I apply it going forward?
What Happened?
I know I was not the only investor that was shocked about what happened on Monday, 8/24/15, the day the market opened up with a near double-digit percent loss. For me, I was driving to a client at my new job and did not have internet access until about 9:45 AM, so I missed the opening bell and the initial shock of the decrease. I received a text from Lanny that just said “Check the market” and once I saw the red and the steep decline, I nearly fell out of my seat. The large loss in market value was not overly concerning to me, it was what didn’t happen next that was the big issue.
I had (still have) $700 in my Sharebuilder account that I could have easily deployed in the market place. But instead of simply logging into my account and making a trade, I froze and had no idea which stocks to invest in or where to deploy my capital. And trust me, I have a lot of companies in my portfolio that could use additional capital, especially after my recent push to begin increasing my positions to a $2,000 minimum (IBM was the most recent benefactor of this new initiative). Not knowing what to do was a strange phenomena considering Lanny and I are usually pretty good at making a decisive investing decision (Lanny more so than me). But for this period of time, I had no clue what to do. And for me to figure it out, I had to stop what I was, perform research, and arrive at a decision. All of this while valuable time was ticking away.
As it turns out, I didn’t have much time to think or perform the necessary research as I hoped for and was pulled into a meeting with the client almost immediately upon arrival. Unfortunately, by the time the meeting was over and I had a chance to re-group and select and investment, the market had already began to rebound and those steep discounts were no longer available. While the market still had a terrible day, this small opportunity had passed by and the figurative window was slammed shut.
Lesson Learned
As we have discussed before, sometimes negative experiences provide the best lessons. And as I mentioned earlier, I am very fortunate that this lesson did not result in a realized loss. So what did this missed opportunity teach me? Always have a stock watch list prepared with investments you are ready to purchase NOW. Then, when a sudden opportunity presents itself, you are ready to act immediately.
Not having a list of investments available was my Achilles heel in this situation. It is funny because Lanny and I recently prepared a watch list that had me focused on purchasing either IBM and EMR. So if I had a watch list ready, what happened and why wasn’t I prepared to act? Well, after I created the watch list, I proceeded to maximize my investment in IBM with two subsequent purchases (here and here) to the point where I was no longer looking to add to my position in Big Blue. In this instance, it wasn’t a failure to generate a watch list, rather to update my watch list once it became stale. Even though I still could have purchased shares of EMR, I began to question whether that was the best investment option as other holdings of mine such as CM, CVX, and KMI declined in price. EMR clearly was no longer the sole focus of mine and I never took the time to figure out which stocks I should focus on. This left me with a lot of potential options…too many to make a quick/decisive decision. I need to get better about building a watch list that will span more than a week or two and constantly updating and replacing stocks on this watch list as the market environment continues to evolve.
Changes Going Forward
So what is the point of learning a lesson if you do not change your approach/strategy/etc. going forward? Don’t worry, that’s a rhetorical question. Based on this experience, I have two ideas that I am going to apply going forward that should allow me to capitalize on a sudden drop in the market place. Instead of having to spend time researching for the best opportunity, these two strategies should allow me to process the information quickly and act immediately. If implemented, I would have been able to read Lanny’s text about the market and purchase a stock within minutes, not hours.
- Regularly Update My Watch List, Even if I Don’t Publish a Watch List Article. I mentioned this point earlier and going forward I am going to place a greater emphasis on constantly building and updating my watch list. The point of our stock screener is to identify great dividend paying stocks that are under-valued now! So I should constantly be searching for that discounted stock that I can pounce on when the timing is right. We have been great about putting together a monthly watch list and it has led to many great purchases, but from now on I am going to internally create weekly watch lists. Hopefully a week will be sufficient to adjust to the changing market landscape. Don’t worry everyone, we won’t be posting a weekly watch list article!
- Create a List of Stocks That I am Always Looking to Buy. This idea has stemmed from one of my favorite articles that Lanny authored last year, the Top 5 Foundation Stocks for a Dividend Investor’s Portfolio. The concept is great. Here are five rock-solid dividend paying stocks that pay a great yield, continue to increase their dividend, and will be a staple of your dividend portfolio for as long as you are willing the shares. For me, I want to expand on this idea and put together a list of five great dividend paying stocks that I am always willing to buy. Some of the stocks may be foundation stocks or some of the stocks may be one of our top 5 high dividend growth rate, low dividend yielding stocks…who knows! So next time when the market suddenly drops and I don’t have a watch list of currently under-valued dividend stocks readily available, I will be able to turn to one of these five stocks and know that I am purchasing shares in a company that I want to own and fits my investing strategy perfectly. You will see an article within the next month or so detailing this list and hopefully I will be able to update this list annually to reflect any changes in investing strategy or fundamentals of one of the companies on my list.
Summary
While it sucks that I missed this opportunity, I was able to learn a lesson and adjust my investing strategy to better prepare myself for the next sudden drop in the market. If there is one thing we know, it is that history repeats itself and I am sure this will happen again some time in the near future. Now, with these two adjustments, I feel better prepared and I am ready to act immediately when to opportunity presents itself!
What are your thoughts on my two changes? Did you purchase any stock this week? Do you have a similar strategy? Do you have a list of stocks that you are always willing to purchase? If so, what are the stocks? Please share so you can help me generate my list!
-Bert