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- No new trades.
As we close out this round of Strategy Lab, I can't help but look back over the past six months and ask myself what went right, what went wrong and what I can learn from it going forward.
First, thanks to a nice bump in shares of Woodward Governor (WGOV, news, msgs), due to very solid third-quarter numbers, it appears as if I may manage to squeak ahead of the S&P 500 Index ($INX) for the past six months, accomplishing one of my major goals. Though I'll likely still wind up in last or second-to-last place in Strategy Lab, beating the market isn't always easy, especially over longer periods of time, so I can't be anything other than happy with that.
Of course, much of the reason I managed to beat the market can be summed up in a single name: Lufkin (LUFK, news, msgs). It was my first CAPS-based pick and by far the best, netting a gain of about 60% at present over a relatively short period of time. It's no coincidence that it was my first CAPS-based pick in Strategy Lab and no coincidence that I made it my top pick at The Money Show in Orlando, Fla. (despite it being my only individual stock pick at the time). I chose it first because it was the one stock at the time I liked the best. Yes, I may be ending up at the bottom of the heap, but it's nice to see my most promising selection, and my first top pick, do so well.
I also have to be pleased with my short sales of Circuit City (CC, news, msgs) and Blockbuster (BBI, news, msgs). Though I lost a little on the Blockbuster trade, it was a lot of fun to put the big thumbs-down on the merger with Circuit City and be proved correct just a few days later when Blockbuster withdrew its offer.
I wouldn't be sitting in close to last place if all my trades were as successful. I certainly took a pounding on both Titanium Metals (TIE, news, msgs) and Nvidia (NVDA, news, msgs). I still think Nvidia, especially, is poised to generate market-beating returns over the coming years -- which is why I added to my position here in the Strategy Lab after the drop -- but time certainly isn't my ally here at the end of the Lab round.
So what will I take away from this round of the Strategy Lab besides having a great time and meeting a lot of really sharp investors? Three lessons in particular:
1. Have a goal before you start, and judge your performance against that goal.
Each of us is in a different situation. Some are young and just starting to build our portfolios while others are approaching or already in retirement. Different goals call for different investing strategies. An obvious lesson perhaps, but it's one that bears repeating.
I know that I, for one, sometimes get caught up in the scorekeeping mentality of investing, and it pays to step back from time to time and remind myself what my real goals are and judge my performance based on those rather than what other investors or the market in general might happen to be doing.
2. If you see a big, fat, juicy pitch . . . swing!
I think the markets are generally fairly (though not perfectly) efficient. Finding grossly mispriced stocks isn't something that I've encountered on a daily, weekly or even monthly basis. Sometimes there's something the market's seeing that I'm missing, which is why due diligence is so important.
Sometimes, however, the market is simply offering us an incredibly attractive value proposition and one that likely won't be around forever. As my Strategy Lab portfolio demonstrates, it doesn't take many Lufkins to juice one's overall portfolio return quite nicely, so when I see the market throw me a hanging curveball like this in the future, you can bet I'll be hacking at it.
3. Sometimes you make the right call, for the right reasons, and things still don't go your way.
Case in point: Nvidia. Some may say this wasn't the right call to begin with (and returns thus far would go a long way toward substantiating that viewpoint), but I'm not quite so sure. Sometimes we make the right call and things just don't go our way.
The key for me personally is to not let temporary market fluctuations derail my sound thinking. I still see a company with a history of rapid growth trading at what I believe to be deep discount. Besides, my Lufkin call was upside down there for a while, too. Imagine if I had thrown in the towel on that call early on?
In closing, I hope that you have learned something from this exercise, as I know I have. If nothing else, I want to take one last opportunity to encourage you to take a look at CAPS. It is a service that I know has helped make me a smarter, better investor, and I think it can do the same for you, too. Who knows? Maybe it'll help you find your next Lufkin.
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