July 13, 2015
My dad was in IT back when mainframes and the internet was hot in the late 90’s.
But he got sick of the 9-6 lifestyle and quit his full time position and decided to work as a temp IT specialist and hopped from one short term (1-2 year) contract to another.
It was great during the peak because he was bringing in probably 1.5x to 2x what comparable full time employees were making.
But recessions came.
Then the demand for mainframe computer engineers faded away.
I’m a teenager at this point in time so I don’t care.
But my dad took matters into his own hands and got a barbers license and opened up a barbershop.
Later on, my mom also decided to get a hairdressing license and the barbershop became a salon.
Dual income.
Yes!
Family finance is back on track.
Then my dad got into stocks.
It was a little at first, but his excitement built and I remember a couple of investment magazines arriving at the door.
He starts moving over savings and equity from the home to his trading account.
But I’m a teenager at this point in time so I don’t care.
Over the following weeks and months, he got deeper and deeper into it. He was beaming, he was excited and he had a bounce to his step.
“I can feed my family easily with the money I. making in the markets” he said.
Weeks and months go by and his beam is gone.
His bounce and excitement has disappeared…
Now I’m in college and my dad needs extra cash for some reason. So with the favor of a church friend, he gets a janitorial position at a large supermarket for Saturday morning before the store opens.
I’m still a teenager at this point in time so I still don’t care.
As long as I’m not disturbed playing my video games.
Well I don’t recall how I started helping, but when Saturday 4am came, we’d be driving down the chilly road, and by 7 or 8am, I’ve finished mopping both sides of about 12 huge aisles, washing the floors, buffing the aisles, cleaning the toilets, and emptying the trash.
Nothing.
But in a good way.
A month ago my parents came to Seattle for the first time and for the very first time, we talked (or argued) healthily about the past.
He opened up that during his darkest hours, he was down hundreds of thousands of dollars from greed and when he tried to “win” it back, it got worse.
His late night walks was his only escape from home and he would cry and shout out his frustrations and fears.
But those Saturday mornings was a time to slow down the pace, get some exercise and gather his thoughts on tackling the big problem that he was facing.
Fast forward 15 years and time has cured the losses and the hard financial times.
Who would have thought that we would enjoy a week together admiring God’s gift of nature at Glacier National Park and Yellowstone.
Well that’s the background I entered with stocks.
I sure had some strong prejudices and there’s a lot to reflect on how I got here.
But here are the strongest lessons that I walked away with.
In a previous article where I explained why I’m now more Buffett than Graham, I mentioned how I started seeing bad habits being accentuated with being involved in the stock market.
Previously, I didn’t realize I had this issue, but the stock market and money magnifies strengths and weaknesses.
One of my early weaknesses was trying to keep money invested at 100%.
It had to do something.
I didn’t want the cash sitting on the couch watching tv. I wanted it to go to the gym every day and get as buff as possible.
But don’t take my word for it.
In Seth Klarman’s 2004 letter to investors, he wrote that
Human beings are only endowed with so much patience, after all. Few are able to look past near-term returns, and today anything appears to offer better returns than cash. Also, given their relative-performance-oriented, competitive nature, investors loathe the possibility of underperformance that comes from sitting on the sidelines; they find it better to be in the game (unless, of course, the market drops). Most significantly, they remain highly skewed toward the greed end (how much can you make?) and away from the fear end (how much can you lose?) of the spectrum of investor emotions.
My dad got carried away on the greed end and paid for it mentally and emotionally.
But the cash from that weekly janitorial job signified opportunity and that it wasn’t the end. Ultimately he was able to get back on his feet.
There are definitely other advantages of holding cash which I’ve come to appreciate.
As Klarman puts it again;
The alternative is to remain liquid, defy the steady drumbeat of performance pressures, and wait for the prices of at least some securities to drop. (One doesn’t need the entire market to become inexpensive to put significant money to work, just a limited number of securities.) This path also involves risk in that there is no certainty whether or when this will occur; indeed, securities prices could rise further from today’s lofty levels, making the decision to hold cash even more painful.
However that pain doesn’t come anywhere close to the suffocating pain that companies like Lehman Brothers experienced due to lack of cash before going bankrupt.
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Keep up and keep walking...
2015-07-13 20:49