If it takes foreverAs I prepare this report, the market is taking a beating. The Nasdaq, flying high above 5,000 back in March, is now flirting with 3,000, and the Dow is scraping 10,000. Ouch. Our Rule Breaker holdings have not escaped damage, either:
I will wait for you
For a thousand summers
I will wait for you...
-- Theme from "Les Parapluies de Cherbourg"
Company 52-week high Recent price % change Amgen $80 $63 -21% Amazon $113 $28 -75% AOL $96 $56 -42% AtHome $60 $10 -83% Celera $276 $71 -74% eBay $128 $56 -56% HGS $116 $76 -34% Starbucks $45 $40 -11%My personal portfolio is down over 30% in the last year or so. These aren't pretty days for those of us who check in on our portfolios regularly. A few thoughts come to mind as I ponder the perpetual volatility of the market in general and Rule Breakers in particular. Most of them have to do with patience.
First off, as we've noted many times, Rule-Breaker companies tend to be particularly volatile. They're not for the faint of heart. And it's probably smart to not hold only Rule Breakers in your portfolio. You need to be prepared for sharp moves. (By the way -- remember that our portfolio is here as an example, not to be copied blindly. To paraphrase a common Latin phrase, caveat investor.)
Given that companies in which you invest can surge or plunge unexpectedly, it might be smart to just expect this volatility. It's helpful, and really kinda necessary, to have a long time horizon. If you're planning to hold on to your various stocks for a decade or more, it can be less stressful watching them swoon for a while.
Be contrary. When others are panicking and selling is usually not a great time to sell. When everyone is buying a certain stock, it's often not a good time to buy it.
Here's one good way to play the waiting game: Create a new online portfolio for yourself. It will be a watch list. As you go through your days, reading here and there about interesting companies, add them to your watch list. When you have a chance, begin researching those that interest you most. Get to know most of these companies very well. Eject any on the list that prove to be less appealing than you originally thought.
Then, wait. And wait some more.
If you have a list of 10 to 20 companies, eventually one or more of them will plunge. Then you can quickly take action and buy some shares, having already been studying these companies. (Note that you should first evaluate why the company's stock is tanking. If it's for a good reason, reconsider buying. If it's just market overreaction, then buy.)
I realize that David and Tom Gardner often advocate not waiting to buy your shares of stock. To me, that can also be an effective way to invest, and indeed, I've often operated that way myself, with fine results. Still, paying attention to a stock's price (and valuation) can pay off. There are risks either way, especially with Rule Breakers:
Buy when you're ready, without much regard for price.If you're wondering where you might learn of more Rule Breakers to possibly add to your watch list, here are some possibilities:
With this approach, you risk buying at a very high level, from which the stock will later fall. If you plan to hang on for up to a decade or two, though, in the long run this may not matter that much.
Buy at a good price.
Here you run the risk of getting locked out of a stock, if it never falls to the price you're waiting for. But if you're studying a lot of good companies, you may not buy the one that gets away, but you may end up buying another, at a more favorable price. The price you pay will dictate your ultimate return.
- Last winter's Rule Breaker Seminar had its many teams evaluate and vote for the companies that impressed them most. Here's a list of their results and links to many posts evaluating these firms.
- In August and early September, before deciding to buy shares of Human Genome Sciences, the Rule Breaker boys evaluated nearly a dozen promising companies. (Scroll down to August.)
- Our Rule Breaker Companies discussion board is where, between some squabbles, you'll find Fool community members and staffers discussing the merits and demerits of various companies
- Register with the Fool (it's free) and you can sign up for two free weeks of Investor's Business Daily, where you can read about many interesting companies. (Registration also means we'll offer you special discounts on Fool products, and we can alert you if Tom, Dave, or other Fools are coming to your neighborhood.)
Here's an interesting quotation that leads me into another point:
"In foreign policy you have to wait 25 years to see how it comes out." -- James RestonJust as with foreign policy, you have to wait a long while with investing to see how it will all turn out. You might be pretty pleased with yourself and your solid return over the past few years. Or perhaps you just began investing a few months ago, and many of your holdings are down considerably. That's just the short-term. Focus on the long-term instead. What really matters is how much your portfolio or holdings are worth when you sell them, not how well they did in any given short time frame.
The same goes for our Rule Breaker Portfolio. It did phenomenally well in its first few years. This year has been considerably less impressive. But in the long run, this year doesn't matter much. Maybe our best year is 12 years away. Heck, maybe we've already seen our best year. Remember: Our portfolio is not perfect. Your own Rule Breakers -- or other investments -- may outperform ours. That's fine.
Waiting can be worthwhile. Sometimes, even if you're not deliberately waiting, good things come late. I just finished an excellent autobiography, Katharine Graham's Personal History. Graham was about 46 years old when her husband died and left her in charge of the Washington Post Co. (NYSE: WPO). She more than rose to the occasion. Somewhat similarly, Julia Child, as recounted in the fascinating biography Appetite for Life, didn't find true love or her true calling until she was nearing middle age.
A 1998 article in Forbes listed some other late bloomers: Ray Kroc began franchising McDonald's restaurants at age 52. Colonel Sanders launched his fried chicken business at 62. Grandma Moses began painting at age 71.
When it comes to your stocks, your portfolio, your career, or your destiny, sometimes it's good to be patient.