Thursday, September 18, 1997
The Tribble Fribble
by Selena Maranjian (TMFSelena@aol.com)
When I invited anyone to dare me to pen a Fribble on a challenging topic, Daigon@aol.com asked me, "How about a piece on Tribbles?"
My first reaction was to be pleased with myself for knowing what Tribbles were. I've not watched too much Star Trek in my life, but one episode I do remember well is the one with Tribbles, where the spaceship is taken over by hordes of creatures that strongly resemble earmuffs multiplying out of control. I boldly set off to corners of the web where no Fool has gone before, in search of more detailed background information. (Also, with a little trepidation, as a germ of an idea for the Fribble had taken hold, but it was a topic I was loathe to publicly address.)
As expected, I found a wealth of information. For example, the episode originally aired on December 29, 1967. (Most Fools at Fool HQ weren't born yet.) A Swedish trekkie site offered an amusing synopsis: "Kirk upptacker den skyldige, en klingonsk agent, nar en tribble spottar pa honom."
One site offered a bunch of quotations from the episode, which on their own related to investing. For example, Captain Kirk said, "Wheat? So what?" Obviously, this was his way of saying that he stays away from wheat futures and other unFoolish things. And then there was a revealing exchange between Kirk and Scotty:
"Scotty, you're confined to quarters!"
"Yes, sir. Thank you, sir! That'll give me a chance to catch up on me technical journals."
Clearly, Kirk must be alarmed at Scotty's investing techniques and is ordering him to cease investing significant amounts of moolah and, if he must, only speculate with small change. And Scotty, who has apparently gotten caught up in technical analysis of stocks, is looking forward to reading more about oscillators and formations. A sorry state of affairs, but there you have it.
And then there was the Klingon who said, "Kirk may be a swaggering, overbearing, tin-plated dictator with delusions of godhood, but he's not soft." How does that relate to investing? Well, presumably, the Klingon watched a lot of financial television shows, and was somehow reminded of stock market gooroos and prognosticators.
But back to the shameful association that came to my mind earlier when I thought about Tribbles. I confess that the Tribble episode reminded me of my own portfolio of stocks. That's right -- there's a reason why some fellow Fools at HQ refer to my portfolio as the "Selena Index Fund."
I bring up this subject because I fear that a bunch of readers out there might also suffer from the same lack of discipline that I did (and to a lesser degree, still do). Every time I would read about an interesting stock, I'd do a little research (unfortunately, too little) and would often plunk down a little money on it. It got to the point where I had more stocks than I would care to mention. And worse, some I was even embarrassed to admit owning. Just like Tribbles, my portfolio was bursting at the seams with too many stocks. Things were out of control and getting worse.
What turned me around? Well, it was almost a Fool intervention. It was suddenly made clear to me that in investing, sometimes less is more. Let's say you own somewhat equal stakes in 25 stocks. Each one represents only about 4% of the portfolio. For simplicity's sake, let's say it's a portfolio of $100,000, with $4,000 in 25 stocks. If in a certain time period you hit a home run with one of them and it quadruples in value, while the others rise an average of 15%, your portfolio will be worth $126,400. Not too bad at all. (This is a rosy example, though.)
What if you had a more focused portfolio, though, holding only 8-12 stocks, as the Fool recommends? If you held 10 stocks (each representing 10% of your portfolio) and one of them was your home run stock, with the rest averaging 15%, you'd have $143,500. A lot better, eh? Whereas my previous approach was to try and hold every promising stock I saw without doing my duly diligent homework, I now see that a little homework will make me a much more respectable investor, with a greater chance of holding the home-run stock, even in a more limited portfolio.
I've been paring down my holdings recently and am sleeping better at night. Do I own only eight stocks yet? No, but I'll be one happy Fool if I can muster the discipline to get there. Because with only eight stocks, each one will represent 12.5% of my portfolio, and a sizable move in any one of them will make a noticeable difference. If the ones I hold are the eight most promising stocks I've found after a lot of research, then I'll be well-positioned for long-term appreciation, having rid my portfolio of the trouble with Tribbles.
Fool long and prosper!