I started in the investment advisory business four years ago when a friend of mine called me, wondering if I could help oversee his company's computer operations, and maybe learn something about investing while I did it. Well, four years later, I can say, with Dave Gardner and A.A. Milne:
When I was One, I had just begun.
When I was Two, I was nearly new.
When I was Three, I was hardly Me.
When I was Four, I was not much more.
-- A.A. Milne, "Now We Are Six"
It has truly been a ride any Fool would love. I began thinking I could become one of the Wise. My knowledge and investment prowess would put me head and shoulders above the competition. Well, it's four years later I am learning what "Every Fool must learn -- Advice is one thing that is freely given away, but watch that you take only what is worth having." (George S. Clason's 1926 classic, The Richest Man in Babylon.)
So, as I've let go of the Wise and their sayings (downgrade from buy to accumulate!), I've received the wisdom of the Ages from such Fools as Warren Buffett, Bill Gates, and many a Motley Fool post and article. I have the best job in the world: While I get to help others invest, save, and re-invest in life-changing opportunities, I get to invest, save, and re-invest in life-changing opportunities for myself and my family.
My Foolish education began shortly after I entered this business when my mother-in-law called and said, "Could you invest some money for me?" This is the story of that kind lady (we'll call her Mrs. Courage) and the girl who made her rich (we'll call her Ms. Fear).
"How," might you ask, "did Ms. Fear enrich Mrs. Courage?" Well, getting back to my story, my mother-in-law called to invest some money and she gave me this directive: "You do it for me. I don't need this money any time soon and I trust you." Sheesh. That's a lot of trust to lay out for anyone with money to invest.
She happened to open her account at one of the most volatile times in the last three years: July of 1996. If you recall, that's when the bond yield was over 7.1%. One headline from The Wall Street Journal on 7/8/98 read "Fed Criticized as Bond Yield Surges to 7.18%." This is on the same page with the headline: "Jobs Data Spark 115-Point Plunge in Industrials." At a Dow of 5,588 this represented a 2% decline. Overall, this was a month of regular market declines in excess of 100 points in a day.
Remember that the market had risen steadily since January 1995. Many Chicken Littles were running over each other, crying "The sky is falling!" Remember Elaine Garzarelli's prediction of a 15% correction on 7/23/96? This was after the Dow had dropped from 5,702 on 7/4/98 to 5,346 on 7/23/98. The Dow finished the month at 5,677 while the Nasdaq Composite fell over 15% in a 30-day period. It was too good to be true, the free ride was finally over, the other shoe was getting ready to drop, and all the tiny guys were fixing to get squashed underfoot by the next great bear market. OK, OK, you get the picture.
Well, I have to admit I was a bit fearful myself, wondering if I shouldn't just wait for all the selling to stop and prices to head back before I began to invest my client's money. I mean, we all would love to hear the "all clear" signal before we close our eyes and thrust our money (or our client's money) into the market. But hold on a minute; when Fools invest money, they're not just buying Powerball tickets or stock by mail-order or some online stock-ticker denominated casino. There's a real, live seller behind each share of stock you buy. Do you ever stop to think about that? Do you have a yellow sticky reminder plastered to your screen that says, "You pay a very high price in the market for a cheerful consensus." Literally within hours, someone else was going to make my decision very easy to make. In mid-July a younger client called saying she needed to liquidate her holdings. She had her eye on something else, and well, "It wasn't a good day for investors," she had heard CNBC say. Regardless of our attempts to help her hold still and see the bigger picture, she couldn't resist. Over and over she said, "Today wasn't a good day for investors today wasn't a good day for investors today wasn't a good day for investors" until she finally came to believe it as the only truth.
Anyway, she happened to own a number of excellent companies that just happened to be on sale in a big way. Remember the setting: In the first two weeks of July '96, the Nasdaq was down over 10% and Ms. Fear's account was down almost 12%. And now, she was ready to jump ship. Hindsight is always 20/20, but I wonder, how would you have liked to have been the one buying the following companies on fire sale two years ago: Microsoft, Cisco, Medtronic, and Sun Microsystems.
This group also included Oracle, Gateway, Schering-Plough, and Amgen. With the decision to sell finalized, the only thing left to do was pull the trigger. To reduce the cost of liquidating, I suggested selling her holdings to another client of ours and thereby avoid paying commissions. Upon securing the permission of both parties, the sales took place at that night's closing prices. With both seller and buyer content that they had gotten what they wanted, (Mrs. Fear wanted out of the market, Mrs. Courage wanted in), we were reminded of what Warren Buffett said: "In golf, every stroke makes someone happy."
I don't know whatever became of Ms. Fear's proceeds but I do know Mrs. Courage's holdings are about 70% larger than they were in July of '96, with holdings that include Microsoft, Pfizer, Amgen, T.Rowe Price, Cisco Systems, Berkshire Hathaway, Schering-Plough, Oracle, American Express, Coca-Cola, Intel, and Medtronic, just to name a few.
Since that time she's seen a lot of mini-corrections in these companies. Fall of '97 was not a particularly enjoyable time after the Asian meltdown, especially for shareowners in Oracle. However Mrs. Courage patiently (Foolishly, if you will), sits still, happy to be a part-owner in some of America's best-run businesses. She doesn't know what Flow is. She doesn't know what George Michaleis' formula for Total Return is, nor that her portfolio's TR is two times that of the S&P 500. Goodness, she doesn't even know who George Michaleis is. She just sits patiently, not losing a minute's sleep over the daily gyrations of the market or the comments from the Wise. She may not be a regular reader of 'da Fool (she doesn't even own a PC!), but she is definitely Foolish in her willingness to let great companies do their thing, without her fussing and whining along the way. May we all be so Foolish in the months and years to come!