Should You Sell Everything? Here's How to Know

Worldwide Invest Better Day 9/25/2012

Happy Worldwide Invest Better Day! Today at Fool.com you'll find pages upon pages of advice for how to buy stocks and build a portfolio. If you're a beginning investor, you couldn't ask for much more.

But what if you've already tried investing? What if buying stocks hasn’t worked out for you so far?  Should you sell everything and start over? I did. More on why in a minute; first, let me tell you about my first visit to Fool HQ.

The day I met David Gardner
In 2003, two years before I'd join his Motley Fool Rule Breakers stock-picking team, a friend arranged for me to meet David on a trip to Fool HQ in Alexandria, Va.

For me, it was a short but memorable meeting in a scrappy space that fit every rebellious image I'd imagined since reading The Motley Fool Investment Guide and the 13 steps to investing Foolishly in the late 1990s, including the half-deflated blowup Hulk doll sitting next to David's desk, an homage to his recent pick of Marvel Entertainment in the pages of Motley Fool Stock Advisor.

Our brief meeting kicked off with the one question I'd been dreading: "So, how many stocks do you own?"

"None," I said, nervously. "I sold everything because I decided I just didn't know enough about investing yet."

David's response: "I think we'd consider that very Foolish."

Cut to me, relieved. Smiling. Thrilled even, and re-energized to get back to the business of studying stocks, a process I'd begun after a series of embarrassing mistakes.

Past as prologue
Mistakes are partly what defines me as an investor. And not just investing mistakes: I'd piled up more than $45,000 in mostly credit card debt by the time my wife and I were married in 1997. Paying off that debt taught me valuable lessons about money as I learned the basics of investing.

But I wasn't patient with what I'd learned. Instead, I decided to begin buying stocks almost immediately. Early purchases included shares of Caterpillar (NYSE: CAT  ) and Eastman Kodak (NYSE: EK  ) , which I knew little about. Instead, I chose to trust a mechanical model called "The Foolish Four," which first gained prominence in the Fool's Investment Guide. Back in 1999 and 2000, both stocks fit the criteria set forth in the book.

Yet in buying, I'd tossed aside one of the principal lessons of the book -- that anyone willing to study businesses can become a market-beating investor -- in favor of a shortcut. Months later I'd compound the problem by tinkering with what to that point had been a proven model. Doing so cost me dearly. And yet I wasn't done throwing money away.

Around the same time that I put my wife in the Foolish Four stocks, I purchased shares of Amazon.com (Nasdaq: AMZN  ) when CEO Jeff Bezos appeared on the cover of a popular business magazine. My reasoning: If Generic Business Monthly likes Amazon, then it must be a great stock. Neither the e-tailer's purported advantages over traditional distributors nor the future potential of digital book sales entered my thinking.

A few massive sell-offs later, my Amazon position was down 90%. I'd also forfeited what had been a 20-bagger in shares of Sun Microsystems that I'd purchased while an employee a few years earlier. My confidence as an investor had never been lower, and for good reason: I'd been buying and holding stock in businesses I knew little about.

By early 2003, months before my visit to HQ, I'd had enough. I sold everything and resolved to start over, fresh. So, instead of buying stocks, I bought books. I visited the library. I subscribed to Value Line. Peter Lynch, Ben Graham, and Warren Buffett became my teachers, though it was Philip Fisher who would inspire the style I embrace to this day.

My curriculum included building spreadsheets, calculating discounted cash flows, and pulling apart financial statements filed by the businesses that interested me most, including Akamai Technologies (Nasdaq: AKAM  ) , a stock I continue to follow to this day.

My most profitable year of investing
As I think back, I’d say 2003 was my best year of investing. No, it's not the year I put up my best numerical performance; that would be the year Walt Disney bought Marvel for $4 billion. Rather, it's the year I started thinking -- I mean really thinking -- about how I might sustainably beat the market.

Taking the time to figure out a process was important. I learned how to score myself and along the way developed basic buying and selling rules I still abide by. Sure, I've tuned my process over the past decade, but not so much that the investor I was then would find me unrecognizable today.

Which brings us back to the question posed in the headline. Should you sell everything? If you've yet to develop a philosophy and process that works for you intellectually and financially, then I say yes. Sell it all. Refocus on who you are, what you know, and what you want to achieve as an investor. Study the masters. Pick a style that fits your personality, even if that style is simple indexing.  

In the end, that's what this day is all about. Everyone invests differently, but we can all invest better. So start. Enjoy the journey. And most important, know that you aren’t alone. We'll be here to help however we can.

Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team and the Motley Fool Supernova Odyssey I mission. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's web home, portfolio holdings, and Foolish writings, or connect with him on Google+ or Twitter, where he goes by @milehighfool. You can also get his insights delivered directly to your RSS reader.

The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (10) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 26, 2012, at 11:20 AM, 48ozhalfgallons wrote:

    Complete honesty; thanks.

  • Report this Comment On September 27, 2012, at 11:08 AM, jsn1080 wrote:

    Tim - have you laid out/disclosed your investing strategy in a separate article? If so, where can I find it. I'm just curious on how your strategy has been formed as a result of the of the authors and books you've referenced. Thanks.

  • Report this Comment On September 27, 2012, at 1:20 PM, TMM69 wrote:

    jsn1080,

    Thank you for your inquiry. My strategy is in my profile.

    I am new to stocks investing, having just purchased my first stocks when I joined MF. Up until now I had only purchased mutual funds.

    I would summarize my philosophy as looking at stocks of companies I know, and purchasing them. For example, I am interested in and committed to Israel, so I wanted to invest in a company doing business in Israel. Noble is involved there to help them develop their energy, so I bought Noble. The same with TEVA, an Israeli company who dominates the generic drug industry. (Note: MSN Money has an interesting article on Israel's economy and Stock Market that was interesting.) Coke, Pepsi, and Ford, are all companies I have experience with, and Exxon Mobil, a major player in the energy/oil field, and finally, Johnson and Johnson a major company in the health industry.

    The books I highlighted aren't, as you can tell, in the financial realm, but they are books I am reading currently. In fact, Scripture has much to say about finances, so I guess they aren't totally irrelevant, or unsuitable to investing.

    How about yourself, how would you describe your investment philosophy, and how did you form it?

  • Report this Comment On September 27, 2012, at 1:44 PM, Darwood11 wrote:

    Good article and I appreciate your honesty.

    "As I think back, I’d say 2003 was my best year of investing.....how I might sustainably beat the market."

    The above is an interesting point. I thought about this and I realized I don't approach investing as about "beating the market." I approach it as simply growing my assets over time. Perhaps I'm in the wrong pew? My life has been mostly about doing my best, and doing what I can to achieve extraordinary results.

    Sometimes I succeed, and sometimes I fail. Usually, I learn from my failures. Then I apply what I have learned. It's a continuous process of improvement.

  • Report this Comment On September 27, 2012, at 2:09 PM, fitness14 wrote:

    My philosophy thus far (I am new) is to try to find stocks that I would invest everything I have in (investable monies that is....not house and home). I figure that it the company is good enough for 10% of my money I should be willing to invest all of it. I look for companies that have strongly defined brands, a history of success, are fairly valued (or better yet undervalued), and serve a social/entertainment or practical need that will be growing in the future. These are the meat and potatoes.

    I also look for down and out falling knives that are a quality knives with sharp blades...companies that made mistakes but the core product is still great. These companies can double or triple within 3-5 years just based upon the heard realizing they are not out of the fight. (Nokia, Intel, HP, Ford....all of which carry risk...NOK and HP the most I would say). This is more the fun money investment....not core stuff.

  • Report this Comment On September 27, 2012, at 2:21 PM, Champico33 wrote:

    Bravo!!!

    Great read and thanks for sharing.

  • Report this Comment On September 27, 2012, at 2:44 PM, TMFMileHigh wrote:

    @TMM69,

    While I can appreciate you participating in this thread, I'm pretty sure the question was directed at me as the author.

    Thanks for writing and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On September 27, 2012, at 3:00 PM, TMFMileHigh wrote:

    @jsn1080,

    >>Tim - have you laid out/disclosed your investing strategy in a separate article?

    Not specifically, but I'm happy to write a follow-up. In the meantime, you can read a little more about my philosophy here:

    http://www.fool.com/investing/high-growth/2011/06/24/3-big-i...

    And here:

    http://www.fool.com/investing/general/2012/09/24/how-im-beat...

    >> I'm just curious on how your strategy has been formed as a result of the of the authors and books you've referenced.

    Trial and error helped inform quite a bit of the philosophy I employ today. Of the books, I'd say the most influential (and what they taught me) were:

    1. One Up On Wall Street -- Peter Lynch

    Start with researching the businesses you love most, because you'll be more likely to put in the work required to follow them.

    2. The Intelligent Investor -- Ben Graham (updated edition includes notes from Jason Zweig)

    Invest for the long haul and have a fair price in mind when you buy.

    3. Common Stocks and Uncommon Profits -- Philip Fisher

    Buying quality matters more than buying cheap. (Fisher also goes on to identify the characteristics of a high-quality business in his 15 points).

    4. Motley Fool Rule Breakers and Rule Makers -- David and Tom Gardner

    The very best businesses, the ones that go on to produce decades of multibagger returns, are born from massively disruptive ideas brought to life by passionate, engaged CEO owners.

    5. It's Earnings That Count -- Hewitt Heiserman, Jr.

    What looks like good growth often isn't. Do your own math, check the cash flow statements, and take the time needed to understand how the businesses you buy create real, tangible profits for paying dividends or reinvesting in growth.

    Hope this helps and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On September 27, 2012, at 3:02 PM, TMFMileHigh wrote:

    @Darwood11,

    >>The above is an interesting point. I thought about this and I realized I don't approach investing as about "beating the market." I approach it as simply growing my assets over time. Perhaps I'm in the wrong pew?

    To paraphrase what David told me those many years ago: no, I think that's very Foolish.

    Thanks for the comments and Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

  • Report this Comment On September 27, 2012, at 3:07 PM, TMFMileHigh wrote:

    @fitness14,

    >>My philosophy thus far (I am new) is to try to find stocks that I would invest everything I have in (investable monies that is....not house and home). I figure that it the company is good enough for 10% of my money I should be willing to invest all of it.

    That's likely a good starting point.

    David has told me of a separate test he uses from time to time. Simply: would you be OK not touching your money for 10 years if it were invested in X business? Do you trust the management enough to simply go away for that long?

    His point wasn't and still isn't that we should invest blindly, but rather that we need to know and be able to trust those who are stewards of the capital we invest.

    Foolish best,

    Tim

    --

    Tim Beyers

    TMFMileHigh, Motley Fool Rule Breakers Analyst, Supernova Odyssey I Portfolio Contributor

    Web: http://timbeyers.me

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