With Down Days:
How the markets
Glendale, CA (Aug. 11, 1998) -- While I wrote this, the Cash-King Portfolio was really taking it on the chin. Back on August 4th, the C-K Portfolio dropped a whopping 3.5%. While writing this, the C-K Portfolio was down another couple percent. Go back four weeks from here, and you'll find that our portfolio was up 20% for the year. By the close of today, we're up less than 13%.
Like many of you out there, I check up on the performance of my personal portfolio several times as the day goes by. After all, the Internet makes it so gosh darn EASY these days. In fact, even the Fool itself now provides you a way to follow this portfolio, hour by hour.
On the other hand, since Cash-King investing is based on very little trading and decade-long performance, such constant portfolio monitoring might seem to be at best a waste of time and at worst downright destructive. A while back, Phil Weiss discussed this (Tracking, Not Trading), and his conclusion, with which I agree, was that there was nothing wrong with monitoring your portfolio's value provided that all you did was look at the portfolio's value.
In fact, watching that value go up and down during the day can provide cheap entertainment, and there's no harm in it. Couple that with a check on news and then a look into the message folders of your stocks, and you have the makings of a learning experience with a little fun every day. That's my regular routine. But while I'm learning, I recognize that the C-K approach is to re-evaluate our holdings at earnings time, then every year, and then to seriously re-evaluate them once every decade.
Once every decade?
To be honest, Tom's Hold for a Decade plan seems tough to me, since I still can't get over a gut-wrenching feeling on really bad market days. It does help to remember that often I didn't lose any more than the "average" investor. When I start thinking that way, I can even get happy in down months. How so?
Well, over the last month, while our portfolio has fallen, the market has fallen much more significantly. We have a broader lead on the S&P 500 today than at any point in the portfolio's history. In a world where the S&P 500 has on average gained over 11% per year this century, that's how we track our portfolio -- against the market average, knowing it will always eventually rise. We ask ourselves, "Are we beating the S&P 500 -- which over 90% of all managed mutual funds have lost to in 1998?" That's what matters.
But on really down days, I admit that it's still a little tough to stomach it all. Thankfully, there was plenty of worthwhile advice available on the Fool's virtual pages after the market's big one-day dive last week. The common theme was right on the mark, that we Fools are in this for the long haul and that we should act accordingly. Some of my favorite phrases that I ran across in Fooldom included:
* No money belongs in the stock market
unless you can leave it there for at least
five years (preferably ten).
* Falling prices are good for investors,
because it lets us buy more shares.
* Keep your eye on the horizon, not on
* I don't know whether the next 2,000
points on the Dow Industrials will be
up or down, but I know that the next
10,000 will be up.
With these, and others, I've been able stick with the "Look Don't Touch" motto to investing. But at times, only barely. I even dropped Phil an email last week and asked him whether he had any good ideas about avoiding indigestion on a day like that one. Phil wrote back that he just played with his son and didn't even look at what happened to his portfolio.
Man, oh, man -- I admire those of you, like Phil, who can avoid looking in on the bad days. But I don't think that's the solution for me. That's the time when the market's performance dominates the news. The temptation to check on my stocks during those periods is just too great to resist. Given that, the least I can do is gleefully enjoy watching the UP days. Luckily, there have been about twice as many up days as down days for the market this century.
And what I've noticed is that today's 3% drop will usually be matched by a comparable climb during the month. Of course, the cycle can take a lot longer than a few days. Sometimes it's a 10% drop in a month, followed by a 15% rise over the next six months. In the early 1970s, it was a 40% drop over eighteen months, followed by an 89% gain over the next two years. The key to market outperformance, or at least one of them, is not to sell after that one-day drop of 3%. Or that one-month drop of 10%. In fact, over here in Cash-King land, the real key is often not to sell. Period.
But I will watch.
Stock Change Bid AXP -2 5/16 98.50 CHV +3 11/16 79.38 CSCO -1 3/16 98.00 KO - 5/8 79.50 GPS - 7/16 62.50 EK -1 3/8 82.50 XON + 1/4 68.00 GM -2 1/16 69.00 INTC -2 1/16 84.56 MSFT -1 103.44 PFE + 1/8 104.00 TROW -1 15/16 33.69
Day Month Year History C-K -1.23% -2.78% 12.36% 12.36% S&P: -1.31% -4.61% 6.76% 6.76% NASDAQ: -2.53% -4.26% 8.46% 8.46% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 103.44 32.16% 2/3/98 22 Pfizer 82.30 104.00 26.37% 5/1/98 37 Gap Inc. 51.09 62.50 22.33% 2/27/98 27 Coca-Cola 69.11 79.50 15.04% 6/23/98 23 Cisco Syst 86.35 98.00 13.50% 2/6/98 56 T. Rowe Pr 33.67 33.69 0.04% 2/13/98 22 Intel 84.67 84.56 -0.13% 5/26/98 18 American E 104.07 98.50 -5.35% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 82.50 30.65% 3/12/98 20 Exxon 64.34 68.00 5.70% 3/12/98 17 General Mo 72.41 69.00 -4.70% 3/12/98 15 Chevron 83.34 79.38 -4.76% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 2482.50 $604.05 2/3/98 22 Pfizer 1810.58 2288.00 $477.42 5/1/98 37 Gap Inc. 1890.33 2312.50 $422.17 2/27/98 27 Coca-Cola 1865.89 2146.50 $280.61 6/23/98 23 Cisco Syst 1985.95 2254.00 $268.05 2/6/98 56 T. Rowe Pr 1885.70 1886.50 $0.80 2/13/98 22 Intel 1862.83 1860.38 -$2.45 5/26/98 18 American E 1873.20 1773.00 -$100.20 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1650.00 $387.05 3/12/98 20 Exxon 1286.70 1360.00 $73.30 3/12/98 17 General Mo 1230.89 1173.00 -$57.89 3/12/98 15 Chevron 1250.14 1190.63 -$59.52 CASH $94.76 TOTAL $22471.76 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio for future investment. This will be reflected
in the numbers as soon as possible.
*The year for the S&P and Nasdaq will be as of 02/03/98