Winning the Super Bowl takes an incredible effort. It all starts with mastering the fundamentals and developing a great game plan. Winning the Super Bowl does not happen on Super Bowl Sunday; it happens in training camp in August. It begins with mastering blocking, tackling, throwing, catching, running and calisthenics under a blazing August sun. The Super Bowl is won at a random Tuesday in April as coaches are bent over the playbook burning midnight oil redesigning the game plan to fit the personnel available. Mastering the fundamentals and designing a game plan that exploits your advantages is the path to the Super Bowl.
Winning the investing game is a lot like winning the Super Bowl. You have to master the fundamentals and take advantage of your strengths. One of the biggest reasons individual investors underperform the market by such a wide margin is that they do neither. If you are managing your own account and you have not read Graham, Fisher, Baruch, Zweig, Navellier or Marks, you have not even begun to master the fundamentals. If you do not have at least a working knowledge of accounting, you are like a football team that just skipped training camp and showed up on opening day expecting to compete. You need to have the basic knowledge of how the game works and be familiar with the various approaches that have worked for champion investors over the years.
No one ever won the Super Bowl because the coach's uncle's friend knows a guy who talked to someone who heard about an unstoppable offensive scheme. Many investors have a portfolio full of stocks picked on just such a shaky basis. Put in the time, master the fundamentals, pick a game plan that fits your personality and ignore the well-meaning advice of the touts, bookies and prognosticators who flock to the stock market as much as they do to the game of football.
Make sure your game plan fits your strengths. If your personality and skill set fit best with the value approach, be a value investor and study the masters of that craft. If your initial foray into the fundamentals makes you more comfortable with a growth approach, then study growth-stock investing as practiced by the masters of the craft. If you feel you have the emotional and mental discipline that will allow you to master the art of momentum investing, then that should be your approach.
If you want to be the Bill Walsh of investing and run a balanced approach, then spend your time learning to pick the best managers to run the various aspects of your portfolio. I suspect a portfolio mix of managers like Steve Romick; Tweedy, Browne; Louis Navellier; Richard Driehaus; FJ Capital; PL Capital and a few private equity funds run by investors like Leon Black and David Rubenstein will work very well for a skillful manager of managers. It would probably work as well as having an offense run by Joe Montana with the running and short-pass skills of Roger Craig offset by the deep threat of Jerry Rice along with a defense featuring Ronnie Lott and Michael Singletary.
Once you have put in the time needed to grasp the fundamentals and developed a game plan that fits your personality, you need to figure out the biggest advantages of individual investors. You have three very distinct advantages and most of us do not use them properly. This is like having Johnny Unitas on your roster and starting Johnny Football instead.
First is the size advantage. When I talk about the trade of the decade in community bank stock, the biggest objection is the size of the banks and the illiquid nature of the stocks. That's exactly why you should be buying them. Most institutions cannot own these stocks, but they are easy to value and understand and the tailwinds are obvious, so pounce. Otherwise, it's like having your offense run on the field while the defense is in the locker room napping. No other equity investment you can make is liquid. Quit insisting on the ability to sell a significant equity interest in selected companies in 20 seconds. It hurts you far more than it helps.
The second is time. You can own a stock for as long as you like. No one is going to care if you buy shares of a company and then hold it forever. I have owned shares of Arbor Investment (ABR) for years and no one has ever stopped to ask why I still own that name. I have owned Shore Bancshares (SHBI) since 2010 and it has fallen by almost 50% then recovered and is now at a gain. No one has questioned my strategy because I have no outside shareholders to worry about or appease.
Best of all, we have no career risk. We do not have to own what everyone else does simply to keep our job. The biggest concern of every portfolio manager in the world is not making you the highest returns possible. It is how not to lose the very good job he landed. The best way to do that is to own what everyone else does, buy when they are buying and sell when everyone else is selling. As individual investors, we do not have to worry about that and can even use their career risk to build our profits by buying when they sell and selling when they are buyers.
Master the fundamentals, design a game plan that fits your skills and personality and use your biggest advantages over other investors to win your investing Super Bowl.