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You Cant Kiss Every Pretty Girl (Or
Handsome Boy)
April 27, 2014 | About: PHM -0.91% MHO -2.02% CVI -1.25% EXPE -0.37% HFS +0%
DDS -0.63% LEN +0.07% MPC.TSO +0% GPS +0.91% BRK.A -0.31%
There are a lot of pretty girls in the world, and there are a lot of sexy
stocks in the stock market, but not even the most eligible bachelor (or
bachelorettes) are able to kiss all the beautiful people in the world. The
same principle applies to the stock market. The most successful
investors have a disciplined process of waiting for the perfect mate to
cross their path, rather than chasing every tempting mistress.
Happily married to my current portfolio, I continually bump into attractive
candidates that try to seduce me into buying. For me, these sexy equities
typically come in the shape of high P/E ratios (Price/Earnings) and rapid
sales growth rates. Its fun to date (or rent) these sexy stocks, but the
novelty often wears off quickly and the euphoric sensation can disappear
rapidly just like real-world dating. Case in point is the reality dating shows, the Bachelor and
Bachelorette. Over 27 combined seasons, of which I sheepishly admit seeing a few, only five of
the couples remain together today. While it may be enjoyable to vicariously watch bevies of
beautiful people hook-up, the harsh reality is that the success rate is abysmal, similar to the
results in chasing darling stocks (see also Riding the Wave).
Well-known strategist and investor Barton Biggs once said, A bull market is like sex. It feels best
just before it ends. The same goes with chasing pricey momentum stocks what looks pretty in
the short-run can turn ugly in a blink of the eye. For example, if you purchased the following
basket of top 10 performing stocks of 2012 (+118% average return excluding dividends), you
would have underperformed the market by -16% if you owned until today.
Warren Buffett (Trades, Portfolio) understands hunting for short-term relationships may be
Investing
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thrilling, but this strategy often leads to tears and heartbreak. Buffett summarized the importance
of selectivity here:
I could improve your ultimate financial welfare by giving you a ticket with only twenty slots
in it so that you had twenty punches representing all the investments that you got to
make in a lifetime. And once youd punched through the card, you couldnt make any more
investments at all. Under those rules, youd really think carefully about what you did, and
youd be forced to load up on what youd really thought about. So youd do so much better.
Rather than hungering for the spiciest stocks, its best to find a beauty before she becomes Miss
America, because at that point, everybody wants to date her and the price is usually way too
expensive. If you stay selective and patient while realizing you cant kiss every pretty girl, then
you can prevent the stock market from breaking your heart.
www.Sidoxia.com
Wade W. Slome, CFA, CFP
Plan. Invest. Prosper.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold long positions in
certain exchange traded funds (ETFs), but at the time of publishing SCM had no direct position in
PHM, MHO, CVI, EXPE, HFS, DDS, LEN, MPC. TSO, GPS, BRKA/B, or any other security
referenced in this article. No information accessed through the Investing Caffeine (IC) website
constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an
investment or other decision. Please read disclosure language on IC Contact page.
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