Bear Markets: Reduce Mistakes and Survive
The world needs ditchdiggers, too!
—TED KNIGHT, Caddyshack
It is important to remember that “bear” markets happen. You need to get through them with as much capital as possible. In a bear market, what you buy, when you buy, and what you pay matters much more than in a bull market. If you learn how to recognize bad markets and position yourself accordingly, you will make money in the next bull phase. The great news about our position in time as investors is that it won’t matter where or when the next great bull phase occurs. Financial technologies, ETFs, and the global pursuit of money will make future bull markets more profitable than ever.
The quote at the top of this chapter is fantastic; it’s from one of my fa-vorite movies. Stocks don’t care whether you are rich or poor, love them or hate them, long or short. The markets will take your money. If they go down the minute you buy them, it’s not their fault, the company does not suck, and you are probably not stupid. If they rocket the minute after you buy them, you are definitely not a genius. If you buy stocks at the right time, consistently, you will make money. Period.
I have tried to show you how to find the “next Starbucks” simply by studying the all-time-high list. In short, proper money management separates the winners from the losers. One thing we can do to put the odds further on our side is avoid catastrophes. That’s not easy, but in the real world of investing, most investors (those not making a career in the stock market) have to be choosy. We have limited time and investment capital. We have real jobs and real financial issues, like education, health, and family obligations.
Let me give you an example. I am a 6- to 8-handicapper in golf. When I am playing well, I can shoot near par. When I am off, the 80s are more likely. I don’t play golf daily, or even weekly—I play golf to relax and to net-work—but I still want to shoot low. That’s the objective. The best way to do that is to hit fewer “bad” shots. I don’t play enough to hit great golf shots consistently, so for me, it’s extremely important to keep the ball in play and to manage the golf course. Take what the course gives you. People who golf with me are always shocked by my abilty to play. They remind me that I don’t look athletic, my swing is crooked and short—I just get the ball in the hole. My mantra is “It’s not how, it’s how many!”
It’s the same for the average investor. If you follow my guidelines for finding winners and then use proper money management, you are on your way.
There’s No Stopping the Business Cycle
Like genetically created veggies and fruit, modern finance has tried to rid the economy of business cycles. Unfortunately, there is no ridding the populace of greed and fear. We have Prozac (for depression), Lexapro (for anxiety), Ambien (for sleeping), and Monster energy drinks, but we can’t seem to do anything but prolong the inevitable cycle.
In my experience, it’s the peaking of fear and greed that “tip” the cycles. In the United States, we fear the second coming of the Great Depression. That makes sense. It was horrible. Our greed comes from a mis-placed confidence that our knowledge will prevent a recurrence. That sounds good on paper. But in truth, I don’t think the markets care that you are fearful or greedy. As such, if you invest, expect to experience a bear market.
Take a look at this chart of the most recent bubbles (courtesy of BespokeInvest.typepad.com). Remember that after each bubble (not including China because, as of this writing, it was bent but not broke), the end of the world was predicted. If you are reading this book, that, of course, never came to pass. In any event, the first element that stands out for me, although not statistically significant using three examples, is the shrinking timeline. The railroad bubble played out over forty years. In our efforts to control bubbles, we may be creating them more quickly. I will leave the real debate up to the economists, “talking heads,” and analysts.
Bear Markets, Like Shit, Happen
Again, if you invest for real, you will run into bad markets. No matter what you own, it will drop and there will also be fewer stocks and ideas to choose from. I now embrace these times. They separate the skill from the luck. In bull markets we all look smart. In bear markets we feel stupid, but the disciplined get rewarded. Unloading your best stocks after they have dropped 25 to 30 percent from all-time highs is an awful feeling. It feels wrong, but in the business of trend following, it is inevitable. You must have discipline.
There is no boogey monster or plunge protection team. Even if you are a conspiracy theorist, do not let it rule your life. I never trusted George W. Bush or Dick Cheney, but I also never believed that writing bad things about them was going to get me audited. I am not paranoid. I don’t let my distrust of people in government or in the market infiltrate my life and influence my investment decisions. If the govern-ment takes us to war, military stocks are going to do better; that is just common sense, and that’s what matters in the market. Price will lead you.
The market is a giant ocean of flowing money and, as with any wave at the beach, you are going to get smacked in the face occasionally. If you think that is the fault of other people, you are not going to make money. In reality, the sharks are defi-nitely out to trick you. If Goldman Sachs wants Google to be higher or IBM to be higher, and if they have to drive it down 20 percent to get it to go up higher, they can and will. You have to know your enemy, but if you start to feel pissed off and victimized, you will sell at the wrong time.
Allowing yourself to feel victimized will also take away your confidence. When in doubt, take another look at the long-term trends in U.S. markets. They show clearly that you do have a chance. If you think the boogeyman is out there and is going to get you, then look in the mirror. That boogeyman is yourself. You are your own worst enemy. If your confidence is low, then do less, invest smaller amounts, and when you feel confident again, increase the stakes a little bit. There is no need to rush unnecessarily.
You have to take responsibility. You wrote the check, or you called the broker, or you pushed the Buy button on the computer. The great news is that you can always change your mind in the stock market.
It is said that the average bull market lasts thirty-six-plus months and the average bear eighteen months. If that’s the case, you will encounter a horrible market within the first three years you invest. That being said, the 1990s basically went straight up and we had to pay for our sins only after March 2000. The real estate boom that began after 1990 was an even longer cycle, basically peaking—at least for homebuilder stocks and land speculators—in 2006.
As we began 2008, a global credit and stock crisis began to unfold. The NASDAQ experienced its worst January ever. Those most prepared will be best positioned for the next leg up. Remember, in bear markets your goal is just to survive and to preserve your capital.
Following is a series of thoughts on things that go wrong and things to watch out for while protecting your capital in the next “bear market.”
Recessions
All media has a field day with the word. There is a fascination with growth. Our leaders have become slaves to the economy. So, in my opinion, to believe in the word recession would mean you have to buy into the data that the government feeds you. That’s a conflict in the United States. I just prefer to watch the markets. When stocks are dropping like flies from my portfolio, I know the markets suck and the mood of the country is terrible. If it persists, people get hurt fi-nancially and react. Productivity drops, and of course growth slows. Forget the term recession proof; there is no such thing as a bear-market-proof stock. In 2008, every leading category from China to solar to health care was ravaged. Trends just ended in clumps. Even Humana (BlueCross BlueShield), fell more than 50 percent. People obviously felt that dying was cheaper than worrying about it.
Don’t Get Mad, Get Liquid
First off, we all lose in a bear market. Some just lose less. A bear market is basically a 10 percent decline in stock market averages. I wish it was that easy to define. I have been a hedge fund manager through a few vicious bear markets, and they’re lousy. I liken the experience to a walk in the Dead Sea in Israel. You are warned before you take a plunge that the salt will find any slight cut in your skin and you will feel the pain. A bear market will cause any equity exposure pain. But here’s the thing: New leaders will emerge from bad markets. They emerge, but usually only a few investors care and only a few believe. If you are busy buying value, managing losses, and mad at your dwindling portfolio from a bear market, you will miss out.
The best athletes generally have the best fundamentals. Tiger Woods is my fa-vorite athlete to watch. He is so good that he can routinely get out of trouble, but when he dominates he is playing golf from the fairways, not the trees. He has learned to manage his swing and not go for 350-yard drives each and every time. It is a simple analogy but true. Tiger is patient. You should learn from him. All you need to do is wait and just stay in the game. In bad markets, you need to do less. If you keep an eye on the emerging trends, avoiding prolonged weak markets will be easy. If you can’t, you should read my blog and you will be up to date.
One other important caution: You are in control until the Buy button is pressed. There is no one to cry to and no one to blame. Participating in the stock market is a privilege, but it is treated like a “right” by too many. If you are buying strength, specifically all-time highs, and doing it well, you will decrease your exposure to weakness and increase your exposure to strength. If you want to do what Warren Buffett does at Berkshire Hathaway, just pay the premium and buy his stock or that of one of his disciples. I am always amazed at how investors get mad at the stock market and stocks. You are getting mad at prices. Prices don’t care and prices don’t lie. If you are getting mad, you are wrong. If you are investing on leverage or you are not in a financial position to own risky assets like stocks, don’t invest. Invest in yourself.
Reducing Mistakes: Avoid Tips
The tip trend has been alive since the beginning of time. This is an example of a good tip: “Don’t smoke in bed!” Here’s a bad tip: “My cousin-in-law Frank says . . .”
The financial world does a piss-poor job of talking about mistakes. Too bad. That’s how we learn. On my blog, I try to own up to my big mistakes. And one mistake we are all guilty of making is listening to tips. It will happen to you if you have invested. If this is your first investment book, I am glad you are reading this. If you have read many investment books, let this section serve as a reminder: Receiving tips is going to cost you. Stop giving them as well.
Through the years, I have received many stock tips and never made a dime. My most recent tip debacle was on a company called PlanetOut.com (LGBT). The company offers products and services to the worldwide lesbian, gay, bisexual, and trans-gender community. It is the largest gay media Web business. I was talking one day with a really smart investor whom I trust immensely, and he walked me through the story. He likes to take big stakes in businesses that are “undervalued,” so this was not a different kind of proposition for him. On paper, it sounded phenomenal. The stock had gone straight down from when it did its IPO. I bought a lot of the stock under two dollars. This is not what I normally do. I broke several of my boundaries: It wasn’t at an all-time high, and I bought it based on someone else’s opinion.
When I talked about having bought it on my blog, my community made fun of me. It rose to two dollars, and I sold some, so that was smart, right? I made some money, which is probably the first bad thing that happened. Then Bill Gates became the largest shareholder of the company, so now I felt like a genius. Of course it wasn’t Bill Gates personally, but the people who manage his money. That news hit the wires and I said, “Okay. Cool. I beat Bill Gates to this idea.” Meanwhile, Bill Gates has probably never heard of it. Then the stock drifted down again and I thought, Well, now I’m going to buy back at the same price that I sold. Then it just plummeted farther. After all of that I was in San Francisco with my wife and kids, and I saw the sign for the PlanetOut offices. We were walking up a hill, and I said, “Honey, that’s—” and I stopped myself. I was too embarrassed to tell her I owned the stock. I was actually thinking about sneaking away from my family to go into their place and yell at them for their horrible business. I was stuck, meaning I never should have bought that stock. Then I should have picked a point to sell it all. I should have been happy to sell all of it at two dollars, and never looked back.
I didn’t do any of those things. I compounded my mistakes by continuing to follow it. That is what happens when you own a company or stock and you have no idea why you bought it. There is no entry point that makes sense, and no clear exit strategy. I was a schmuck for owning the stuff in the first place. I still own a little bit of PlanetOut, and I am keeping it as a reminder of how stupid I can be. There are too many mistakes in this story to count—I made them all.
Stick to keeping it simple and doing your own work. So if you get a stock tip, say thank you and then just forget about it—unless of course they have a blog; then it’s gospel.
Reduce Mistakes: Avoid Cheap Stocks
Cheap stocks are cheap for a reason. I will almost always avoid stocks under ten dollars a share, and other than the extreme stupid behavior (when I really feel like losing money—see PlanetOut example), buy stocks under five dollars. So many great investment books have covered this topic and they are just correct.
As trend followers this is even more important. Trend investing means we will never be first. Momentum stocks always get overvalued and you will find plenty to choose from in the teens, twenties, thirties, and higher. When you do, choose from the higher-priced, more liquid stocks; they will have lots of institutional support and liquidity for you to manage your positions.
Focus: Be an Expert in One Discipline
America offers us the luxury of building wealth from doing one thing well. Being a jack-of-all-trades is nice for MacGyver and getting invited to cocktail par-ties, but is not an important requirement for investing. The best investors stick to those products or services they know.
Brad Feld and Fred Wilson, the two venture capitalists I interviewed for this book, leave the stock market alone. Brad Feld told me that his overall success as an investor in the stock market was not as good as he would like. He said, “When I thought about my behavior, the reason that I wasn’t doing better was that I am so busy doing what I do on the private side that I really wasn’t paying the appropriate attention, or working with the appropriate depth, on the public side. I was behaving irrationally like so many other people do. I’d get emotional about something and sell.”
Fred Wilson had a similar experience. He bought stock in biotech companies in the late 1980s. He said, “I didn’t really understand biotech very well but I was fascinated by it. At the time I didn’t have much money. I don’t remember what stock it was that blew up first, but it just blew up. It just cratered. It went down by fifty or sixty percent.” Now Fred says, “The amount of money that I invest in public stocks is trivial.”
Wilson believes the business of a venture capitalist is investing in an early, pri-vate valuation and getting paid by either a take-out or a public offering. He said, “If the public offering gives me ten times my money, I take my ten times my money and I don’t play for another two times or three times in the public market because I can give it back just as easily as I can get it.”
Venture capitalists do not always exit after their obligations are completed. Feld was a seed investor in Critical Path, a software company. He held the stock during the period after the IPO when he was obligated to hold it. He said, “I had a strategy where I sold half of my stock, and if the stock started to come down, I sold half of whatever remained until I didn’t have enough shares to care anymore and sold them out.”
For the most part, venture capitalists, like you, have to stick with doing what they do well. They need to take the money that they made and reinvest in new ideas. Feld makes a distinction between what he calls seed investing and classical institutional investing. He explained, “The seed investment is when you are trying something and you are willing to lose all your money quickly and just walk away from it. The next round is when you believe that you’ve got something, and you are going to try to build a meaningful business out of it.”
Feld’s company was a seed investor in a company called PeoplePC. When PeoplePC came public in 2001, it closed on the first day at eight dollars. He said, “The company went public with 100 million shares that was worth a billion dollars for one nanosecond—the first trade. By the time we sold the company, we got 2.5 cents a share. Fortunately, it didn’t go bankrupt, but we rode it all the way down to zero. The heartbreaking ones are the ones where you have hundreds of millions of dollars of gain that you rode all the way to failure. The end result is my philosophy today: my investors don’t pay me to be a public company investor. They pay me to be an early-stage venture capitalist. “It’s a huge lesson that I learned from the dot-com bubble,” he continued. “All of a sudden I started doing investments in stuff I knew very little about. While some percentage of the skill that I had did apply, the vast majority of it didn’t, and I found myself over and over losing money in the stock market. I was checking Yahoo quotes 300 times a day, following my stocks.”
Expect Mistakes
There is no perfect strategy, no holy grail, no smooth investment return line to be had. Even Warren Buffett struggles. He was considered a has-been and washed up during the late 1990s tech bubble. Losses will happen. Along with all of the pitfalls I just mentioned, you are competing against the smartest people with the most money in the world. They may want a stock to be in one place, but they start out in a different place because they know that they have the money to move it to the place where they want it to be. When the market turns against you, when the train starts backing up, when you get head-faked, you have to cut your losses. When the market sucks, go do something else.
Venture capitalists are stuck with the same kinds of problems that public investors face. Some don’t want to get in too early because there is no market. Some want to be investors before there is any product because they see a future. They also have the same problems you have concerning when to sell, and they make the same mistakes you make. Sometimes they should sell and don’t practice good money management. They let a company go public and get greedy, saying, “This is just the beginning,” but stock investing is different and the markets can treat a company much differently than a few private investors.
Also, again like you, venture capitalists have to focus on staying in the game. Failure is part of their business, too. The best of them screw up a lot less than the av-erage. They can’t sell their losers like you can sell them. They can get creative and try to raise more money, but if in their hearts they know there is not a business there after six months or a year, they are screwed. It is hard way to make a living. In the stock market, you can change your mind the next day—how great is it that? If you stay away from cheap stocks, you get liquidity as well.
When I was interviewing Fred Wilson for some insights about trends and venture capital for this book, he told me his worst investment was a company called Urban Box Office. He said, “The premise was the urban marketplace comes to the Internet. It was streetware, hip-hop, African-American culture, being delivered in a Web experience to a commerce community.”
When I asked him what went wrong, he told me, “Everything. It was a bad investment premise because there is no real urban segment. Then the creative front man for the business died a month after we made the investment. Then we put another round into the business after he died. The company was mourning and was running out of money, and we put more money in and we shouldn’t have.”
As a venture capitalist or a trend follower, you get whacked, you have suc-cesses, over time you develop boundaries about how you are going to do things, you do what you do best, and you always have a plan for selling. Fred and the rest of the best venture capitalists have a plan for exit before they invest—just like you and I should.
Just Say No: Everlasting Pain-in-the-Ass Industries
You can’t own everything, so you might as well own the best. In great markets, hundreds if not thousands of stocks will hit all-time highs. There are just certain industries and stocks you should avoid. If you are overwhelmed by all the choices and opportunities in the investment world, it may be a good idea to cross off the industries below for the reasons that follow them:
• Airlines: Unions
• Computer Hardware: Asia, Life Cycle, Margin Pressures
• Consumer Electronics: Asia, Life Cycle, Margin Pressures
• Components Companies: Those companies not in control of prices in their chain of supply. Always ends badly.
Number one on the list is airlines. Entrepreneurs and big institutional money are attracted to the space because of operating leverage. But it has rarely translated into long-term shareholder value. Remember that we are the low guys on the totem pole (common stock). I also say no to any business with unions, which includes most stocks where the government has to be involved, like drugs and biotech. I also cross off anything I don’t grasp, where I don’t trust my intuition. I do not trust my intuition about fixing things. Changing a light-bulb can cause me grief, for goodness’ sake. Do not send me to Home Depot. I get dizzy and faint. I am also a little bit like that when it comes to information technology, especially hardware and components. Component stocks have broken my heart. They are sexy and enticing because they trend. They have vicious endings, though. Component companies can be performing phenomenally but in the end, companies that they depend upon, like Hitachi and Toshiba and Apple, may say, We love you and you are doing a fantastic job but, you know what? We’re going to do something cheaper. We (common shareholders) never hear that first call. When those calls get public, component stocks crash and crash hard.
The “guts” business is sexy and lucrative, but it will break your heart. Let me give you a painful example, actually two in the same stock: Synaptics. I have let myself get burned not once, but twice, riding this stock. Synaptics was on fire during the early iPod boom as they were the suppliers of the click wheel and touch technology. Sales were booming, as was the stock. It felt like my secret because the mainstream media never talked about the stock. That did not matter because every Apple employee involved in making the iPod wanted to improve the design and cut costs so they could sell more iPods. Component companies are at the whim of all their masters. If you want to own them and ride them, sell them early and sell them often.
It’s the Dollars That Count
When I asked Fred Wilson what he believed to be the biggest mistake made by both venture capitalists and investors, including those of us who follow trends, he told me, “The mistake that my peers in the venture business make is they focus on valuation and ownership at the expense of dollars invested.” If Wilson wants to invest $3 million for 20 percent of a business, implying that the company is worth $12 million, and a competitor offers $5 million for 20 percent, implying that the company is worth $20 million, the entrepreneur can get seduced by the fact that the competitor is valuing the company higher. The competitor is making his exit harder.
Wilson said, “What is important in the business is the raw multiple of the money invested, so therefore I would rather turn $1 million into $20 million than $5 million into $30 million because I want to make the biggest multiple of gain.” Many of Wilson’s competitors think the way they do because they want to manage ever larger amounts of money. They become asset gatherers and start thinking, “How do I create a billion dollars because on a billion dollars I’m getting paid two percent on a billion dollars. Think about all that income.”
Investors in stocks, trend followers or not, make the same kind of mistake. They see Google at six hundred dollars and think, That’s expensive. I can’t buy two hundred shares, so I can’t own that stock. It isn’t how many shares you own that counts—it is the dollar amount you pay. Don’t be afraid of buying six-hundred-dollar stocks even if you can only buy a small number of shares. Don’t buy three-dollar stocks because you can own more shares. Buy the best stocks, even if you can only own a few shares. The Internet has blessed us with cheap commissions to make it possible.
Manage the Fear
Fear is a normal part of any investment. There are so many things that can go wrong, even in a fantastic bull market. With trend following, the market can get very volatile, and the volatility in a venture capitalist’s world is at an early stage, with a lot of unknowns and uncertainty. I asked Brad Feld about the emotional side of his world. He said, “You have to manage to get rid of all the emotion about making investments. It’s not dispassion. We are enthusiastic about all the things we do, but that moment of closing the investment doesn’t give you that emotional charge. That really comes from building something signifi-cant and having a great exit. The process of building something significant has lots of ups and downs. Things work, things don’t work, you’re happy, you’re unhappy, you love the CEO, you hate the CEO, they win a big contract, a big competitor comes to their market and you get screwed for a while. Google buys a competitor and all of a sudden you fear and feel tortured. [Author’s note: Yahoo buys a competitor, then you cheer because you know that that competitor’s going to disappear from the face of the earth.] That is just part of what we do.”
Feld was an early investor in Sling Media, which was bought by EchoStar. Their first product, the Slingbox turns any Internet-connected PC or laptop, Mac, or smart phone into your home television. That means you can watch TV virtually anywhere in the world. He continued, “The moment at which it was announced that EchoStar bought Sling for $380 million—that is the moment that you cheer.”
Trend followers need to develop the same kind of dispassion that Feld describes. It is very much the same in the process of following a stock. It goes up, it goes down. You have a certain set of boundaries about entering, but the exit is what mat-ters. Winning is about how you manage the process after the investment.
Hope Is for the Hopeless
Hope has no place in the stock market. It is okay to hope for world peace. But if you are hoping about any stock in your portfolio, that it won’t go down any more or that something good will happen to it, you own the wrong stock. You may be too leveraged, as well. You must stay in charge of your money, whether you are doing it yourself or having it managed by a broker.
Keep It Simple
When you are running a strategy, any strategy, you have to stay fo-cused on it and keep it simple.
When following trends, remind yourself often that it is about all the opportuni-ties, about the trains leaving the station, and about getting on and getting off according to a strategy. Simple. Yes, you may have not recognized a trend when it first started, and you may have sold too early one time and too late another time. The good news is that money will move through the system all the time and you have a strategy that will work over time.
In order to keep things simple, you won’t hear much from me about shorting stocks, or about investment derivatives such as futures contracts, forward contracts, options, and swaps. If you get excited about stocks and the market in general, you may get seduced by the sex appeal associated with doing it faster, asking yourself, Why not? Why shouldn’t I? Won’t these alternatives make things happen faster? I have tried all the derivatives and strategies, and for the av-erage investor they are a waste of time and energy. In the right hands they may be good, but in the wrong hands they are like fire: dangerous. If you look at the Forbes 400 Richest People in America list, you don’t see short sellers at the top of that list. You see Bill Gates, Warren Buffett; you see media barons. These are people who continue to be positive and invest straight-up in stocks and individual businesses. Betting against stocks is complicated and negative; you don’t need to do it, so just cross it out.
An even simpler way to participate via stocks than the trend-following methods I am describing is investing in exchange traded funds (ETFs). These are baskets of re-lated stocks that are traded on the stock exchanges. For example, you can own PowerShares Water Resources Portfolio (PHO), which is a group of water-related stocks. Owning an ETF means that you are not focused on just one company’s risk and reward; you are focused instead on a group of them. An ETF gives you a better chance to capture a trend; maybe not as fast, because one company can do a lot bet-ter than a group of companies as a whole. However, if you don’t understand a particular industry but you want to be involved, an ETF will give you exposure. ETFs are also a phenomenal tool to give you diversification across industries and even across countries—you can own, for example, a China ETF.
No Such Thing as a Sure Thing
John Henry, the owner of the Boston Red Sox, is a trend follower. He has no opinions. This guy sees something in motion and gets on it. He hops on that train, not knowing exactly where it will end up but knowing that it is going in the direction he wants to go: up. When you get on that train and you know it is going up, in three minutes it could reverse. That happens in the stock market. A stock goes up, shows itself to everybody, and then all of a sudden the conductor says, “You know what, piss on this—we’re going back the other way.” So you get off; you have to get off. Why keep going in reverse, thinking that the conductor is going to change his mind again and go up? You just have to keep going, moving forward. I would bet that John Henry thinks, If I get on enough trains going in the right direction, I’m going to be on the one that goes just exactly where I want it to.
Trend following is not for the faint hearted. If you want certainty, don’t do this. If you want certainty, you are in danger of getting sucked in by someone selling you a supposedly foolproof system. They will charge you thousands of dollars and you will get a crappy piece of software on your computer, and the minute it stops working, you will freak out and give up.
Instead of spending your time asking, Why? spend it looking for ten other trends.
Be True to Yourself
Comfort plays a role in performance. I have a closet full of suits that cost me a lot of money. People tell me I look good in them, but I don’t feel good in them. They are not my style. Why should I dress like a shark when I don’t think like one? I like being the “Larry David” of money management. If you are uncomfortable buying stocks, the indexes and ETFs are fine ways to invest your money.
If what is going on inside you makes sense, what you are wearing on the outside doesn’t necessarily have to, as long as it helps you think clearly. Wearing T-shirts and Crocs helps me think clearly. Sometimes you have to conform, but less so in today’s world than in the past. That argument rages on and on, and I am sure that tons of money is made in the fashion industry over that debate. But Google is showing how important “conformity to the norm” is to performance: It is not. Comfort is important, though, and it’s gaining importance as our culture gains more importance overseas. Google realizes that their cost is in brains and people. Therefore, they are trying to remove the everyday anxieties their employees may have. The fastest- growing company of all time feeds their employees gourmet food, and scooters lie around their offices and campuses. They have game rooms with Ping-Pong tables and pool tables, and they give their people a certain amount of time for their own work and projects. They have health care at HQ, day care for kids, and you can bring your pets to work.
Keep a Diary
You should get into the habit of building lists and keeping a paper or electronic diary. It does not have to be as involved as a public blog. At worst, it is an exercise in keeping track of the market leaders. Grab a yellow legal pad and just jot down names. This is a great exercise to get a feel for names and industries that continually show up on your lists.
You have to be aware of your strengths and weaknesses and how they affect your investments. I write my blog as a way of holding myself responsible. However you decide to do it, in a blog or a diary, write down your thoughts. Look at your account monthly or quarterly and make notes about things such as how good or bad you have felt about buying and selling, or whether other people are influencing you too much.
When you look back, notice, for example, if your thoughts have been negative. If they have, you should be doing less until you get through that phase. Or, if you have not been making money while the market as a whole has been doing well, you know you are doing something wrong. You can’t lie to yourself. Also, find a trusted group of people or sources who know you well, whom you can go to in order to check on how you are doing as a person, and who will be honest with you and will tell you if you are acting like an ass: friends, a therapist, partners, a spouse.
Be diligent about this. Periodic checkups are a time to look at all of your companies and be honest about them and about yourself.
To-Do List
1. Business cycles can be extended but not stopped—learn how to recognize big market trends.
2. If you invest for more than three years, at some point you will likely encounter a bear market.
3. Avoid acting on stock-market tips at all costs.
4. Jot things down, make lists of top stocks, and keep a diary of some kind. It does not have to be greatly detailed.
5. Fear is normal, but you are in control of your money. Pick a style that works. If it’s cash, so be it.