Friday, October 24, 1997
Karate, Gardening,
and Investing
by Jeff Jackson
([email protected])
The other day, I took my eight-year-old daughter to her karate lesson. One of the neat things about her particular school is that it focuses as much on self-assurance and self-improvement as it does on learning punches and kicks. After every lesson, the class sits down while the teacher talks briefly on the "Topic of the Week."
This week's topic was patience. "Now then," said the teacher, looking at my daughter, "suppose you wanted to grow a garden. You picked the best seeds, planted them in the best ground, and watered them every day. Sounds good? Well, suppose after a few days you got really impatient, saying to yourself, 'Why aren't those plants coming up yet?' and you dug up the seeds to see how they were doing. Would that be a good idea?"
My daughter got the message. Disturbing the seeds would do no good and would probably harm the plants. She simply needed to keep watering the seeds and be patient, knowing that someday a good full garden would be the result. The teacher went on to explain that getting a black belt involves lots of practice and lots of patience.
But I had received a message too. Normally, my investing strategy closely resembles the good gardening approach. I pick good companies with solid growth potential and top management, and leave them alone, making buy/sell decisions only when something fundamental changes about that stock. Unfortunately, every now and then I lose my patience and attempt to take advantage of market volatility to make some quick bucks by "timing it."
If there is one thing I have learned from these experiences, it is that I am a terrible market timer. I had sold a stock the day before, hoping for a quick dip to use to buy it back; instead, I found myself sheepishly buying back at a higher level. I had "disturbed the seeds" and cost myself not only several points in appreciation, but commissions as well. (And if I had used a taxable account for this trading, there would have been a tax hit too.)
I bought back because I believe in the company and in the long-term prospects of its industry. Now I think I'll take the lesson to heart and just let it grow. I'm also beginning DRiP plans (no pun intended) for both my daughters. Together we are choosing the "ground" (industry) and the "seeds" (companies) and we will see what tall trees can grow from good investment "gardening."
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