When I wrote about DHB in Stocks 2004 and later -- at a lower price -- as a Watchlist Stock in Hidden Gems, I advised investors that the stock would be volatile; that the union fighting DHB would carry on smearing the company; that I expected the Interceptor armor to extend its dominance of this niche; and that I believed that, even though Mr. Brooks has a checkered past, his very, very large stake in this business would compel him to serve his long-term shareholders. There were risks. There are risks. This was one of the more speculative stocks I've covered, and I hope I made it quite clear in both reports. Become a Complete Fool
As I wrote in Hidden Gems, I'm not seeing anything that I wasn't expecting. There has been some insider selling -- expected. There's been talk of an SEC look into self-dealing -- expected. And the company has continued to sell jackets as quickly as it can make them. The most recent quarterly numbers along with the follow-along announcements certainly have me -- as a long-term investor -- very comfortable with the developments at DHB. While I can't label this as a company which I could buy, shut my eyes from it for ten years (a la Mr. Buffett) and feel good as an investor - I am perfectly capable of shutting my eyes for three years on this business. But, it's important for me to explain why.
The way that I approach small-company investments is simple. I diversify. I recommend diversification as often and as explicitly as I can. I personally love the idea of owning up to 50 or 75 different small companies, if you have the capital to do so. Put 2% of your capital into each company. Let's say you have $50,000 to invest. That means investing $1,000 into 50 different companies, using Freetrade (subsidiary of Ameritrade) and paying no commissions. Then relax and let them ride. Learn from each position. Study. Assess. Don't sell. Hold. Hold everything for at least a year. Heck, hold everything for three years. But hold. Be diversified enough that no single position worries you at all. If Plum Maker Inc goes to zero, well, that's a crying shame. But hold. Hold like Shelby Davis did when he turned $50,000 into $900 million over 47 years. Stop fretting about the volatility of a single stock in your portfolio. Let it ride. And commit yourself to learn from every single investment you make.
Because when you save that next $50,000, you're going to be a LOT smarter on the second go round. And that's true even if you've been using a service like Hidden Gems to generate ideas. You'll get better. You'll understand a variety of industries. You'll know when management is bogus and when they're merely being smeared. You'll understand the benefits of high insider ownership. . . and the potential risks of it. You'll have individual holdings that rise 5X in value over three years. And you'll have some dogs. I actually think if you're using my service, you won't have a single bankruptcy. We'll see about that. But I feel confident I can follow these from quarter to quarter, intelligently.
I am committed to letting folks know how I feel about companies like DHB that I recommend. But I simply can't live a life worth living if that means updating my thinking on a daily, weekly, or monthly basis. I believe that Phil Carret became a multi-multi-multi-millionaire by checking in on his companies ONLY two times a year. I believe I understand why. And I believe I get why Jesse Livermore made millions, lost millions, made them back, and lost them again while daytrading and speculating recklessly. Sadly, he ultimately took his own life. Phil Carret, the long-term investor, I believe lived until he was 100.
I'm doing my absolute best to offer a service (in Hidden Gems and Stocks 2004) that represents how I like to invest AND that serves the needs of long-term investors. That will mean with a company like DHB that I'll provide my thinking, at most, twice each year. A downdraft in the stock and a wobbly conference call won't shock me out of a position. Why? Because I'm recommending loads of what I consider to be superior investments. Peter Lynch whacked the market when he held more than 1,000 stocks. Walter Schloss smoked the market holding more than 100. The beauty of diversification into superior investments is that no single stock can shake the boat. DHB dropping to $5? Whooptee. DHB rising toward $9. Whooptee. But a collection of superior companies at attractive prices all flittering back and forth, with 10-20% of your holdings breaking out into multi-baggers over the next 5-10 years, and 5% of them exploding into 20+ baggers over the super long-term. . . for me that's an enjoyable, calming, instructive, fascinating, and rewarding way to smash the market.
I continue to believe DHB earns a spot in a well-diversified portfolio of small-caps. I was pleased to meet an investor at the Western Food Association Conference last week who had taken on DHB in his diversified portfolio. I continue to believe this is a $20+ stock over the next 3-5 years. If I'm right, that's a delight. If it doesn't go that high but beats the market, delight. And if it ends up being a sorry loser, it will do so in a portfolio diversified into superior opportunities. Foolish best,
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When I wrote about DHB in Stocks 2004 and later -- at a lower price -- as a Watchlist Stock in Hidden Gems, I advised investors that the stock would be volatile; that the union fighting DHB would carry on smearing the company; that I expected the Interceptor armor to extend its dominance of this niche; and that I believed that, even though Mr. Brooks has a checkered past, his very, very large stake in this business would compel him to serve his long-term shareholders. There were risks. There are risks. This was one of the more speculative stocks I've covered, and I hope I made it quite clear in both reports.