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Gary Grinaker of Bismarck, North Dakota, wrote:
"Most of our readers seem to understand that not only are we not perfect, we are quite conscious of our imperfections. The idea that we make mistakes is something that doesn't surprise us at all, but it seems to surprise some readers. I find that puzzling."
I for one tend to berate myself after purchasing a losing stock. I feel like I've made a "mistake." But is it really a "mistake?"
Let's say we were playing a dice game. Every time you roll a 1, 2, 3, 4 or 5 you win a buck. Every time you roll a 6 you lose a buck.
Have you really made a mistake by rolling a 6? Or in the long run, is losing a buck just part of the regular expense of winning 5 bucks?
In Foolish Four long run, you know there will be a few losers, an average amount of dull performers and a few great winners. We're playing the odds that the winners will out-perform the losers and the odds are in our favor over the long-term.
Ann, I've read your words long enough to know you meant "mistake" to mean a losing stock rather than a value judgment and that you don't take the market personally. I just brought the topic up thinking that perhaps some readers still think there's a magical way to avoid "mistakes' and still play the game."
I got a kick out of that last part because, in truth, I was thinking more broadly when I wrote that. I really was thinking of errors in judgment or errors of fact more than stock picks, especially since with the Foolish Four, it's the numbers that pick the stocks.
The mistakes I was thinking of were things like having the Alcoa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> dividend wrong on Monday so that it was temporarily and erroneously in the Foolish Four. (Barb announced the correction on Tuesday.) I honestly didn't consider that something like a stock selection gone bad in one of our portfolios could be considered a "mistake," for exactly the reasons Gary mentioned. But of course, he was right -- that is exactly what most people would think of.
I've read far too many complaints from readers about stocks that we have purchased for various portfolios that subsequently went down. Where did they get the idea that anyone was a perfect stock picker? Frankly, being mad at the person who recommended a stock (even if it's the most dishonest huckster outside of Manhattan U.S. District Court) is just dumb. Unless, of course, you were one of the people threatened with murder if you didn't buy the stock. If you were, you are excused. Otherwise, concentrate on the person who placed the order.
But being angry about a particular stock going bad, no matter who picked it, is dumb. Every successful investor knows that the secret to investing is not picking winners exclusively, but picking more winners, and bigger winners, than losers over time. Picking all winners is just not possible. Even Peter Lynch (generally acknowledged to be one of the best stock pickers of all time) said that of every five stocks he bought, three were average performers, one was a stellar performer and one was a real dog. (I'm paraphrasing.)
One of the things l liked most about Peter Lynch is his willingness to discuss blunders. Both Beating the Street and One Up on Wall Street make the same point that Gary made: Losers are part of the game. Even a successful stock picker has only a one in five chance of picking a major winner and an equal chance of picking a dog. Pick a lot of stocks and that's a lot of losers.
What counts, the only thing that counts, is the long term performance of your portfolio.
I've am also still hearing from Foolish Four investors who bought last year when Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> and Goodyear Tire <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GT)") else Response.Write("(NYSE: GT)") end if %> were on the list. Many of them still think of these stocks as "mistakes," especially since they were subsequently dropped from the Dow and are both still well below the price many people paid for them as part of a Foolish Four portfolio. Sears is recovering somewhat, but Goodyear is showing little sign of life.
I have to repeat what I've said so many times. No strategy is perfect. It's painful when that imperfection impacts your net worth. But it's part of the game. As they say in lottery-land, "If you don't play, you can't win." (Of course, if it's the lottery we're talking about, you can't win if you DO play, either, if you consider odds of 16 million to one against you the equivalent of "can't," as I do.)
At least when you play the investing game, your odds are far higher. I'll take five to one over 16 million to one any day.
Fool on and prosper!
Just to make a point, I'm going to Foolishly take you to task for a minor word in today's article. You said: