In this episode of “The 5,” Motley Fool contributors Travis Hoium, Taylor Carmichael, and Jason Hall each offer an investing rule they always try to follow when buying an individual stock. While their advice is different, one theme comes up over and over again — patience is rewarded.
This segment was recorded on Oct 21.
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Jason Hall: What I want to do guys is for us to share our own rules, each of us maybe just a rule that you think every individual investor should follow almost without exception. Travis, you got one for us?
Travis Hoium: Yeah. One of the things that I have gotten better at over the years but I think is always a good idea, is to just not check your portfolio on a regular basis. We’re the people who are in the stock market every day, we’re looking at what’s happening with companies trying to analyze them on a fundamental level. But at the end of the day, for me as an investor, it doesn’t matter if the stock is going to go up two percent, or three percent, or five percent, or down, for that matter, in any given day or week, or even year. I’ve learned this over the years that the times when I forget about my portfolio, if you will, and just don’t log in for a month or two, that’s when I really do the best as an investor. That’s something that I’m both trying to institute for myself but I think is a really good idea for most investors, is just don’t check on your portfolio too often.
Jason Hall: Taylor? You’re muted, boss. There he is.
Taylor Carmichael: [laughs] Thank you. I’m a rule-breaker at heart, so that was a tough question for me. I’m like, “Rules, rules.” One rule I like that’s a good rule and I always do it, is I put all of my stocks in Motley Fool CAPS. If you don’t know what Motley Fool CAPS is, this is a free service we provide where you put your stocks in and it measures it versus the S&P 500, which is basically the market. I’m a big fan of doing that. It’s just keeping my ego in check and knowing not just that my stocks are positive, but are they actually beating the market, and that’s a really good thing to do. After you’ve done it for several years, and it gives you a sense of how good of an investor you are, whether you should be in an index funds, whether you should continue being an individual investor buying stocks. I would strongly suggest putting all your stocks in CAPS. We’ve had 60,000 Fools in CAPS already, and it’s super helpful to me, and to piggyback on what Travis said. When I first started playing CAPS, and it’s been around since 2007, I first started playing it, I was actively trading, I was playing it like a game and I wanted to win, and I was trading. I got frustrated because I couldn’t go up, I couldn’t move, and I quit playing, and I didn’t look at it for years, years went by, like four years, but I hadn’t eliminated anything, I came back and I looked at it and I was in the top two or three percent. That just goes to show you, do your research, make your calls, but give them time. You’ve got to give your stocks time to grow and let the miracle of compound interest work. That’s a secret to playing CAPS, is don’t play it like you’re playing football, man. You got to be like a Zen Buddhist and let it sit there for a while, just like your stocks, let them sit, let them develop, and you’ll get to a point where your money makes money for you.
Travis Hoium: Whether you’re doing caps or your own investments, sometimes these short-term things, like we’re talking about earnings on Backstage. But sometimes we lose the forest for the trees because we’re thinking about what happens and not thinking about what that long-term investment thesis is and how our company is executing on that long term. I remember a quote from Jeff Bezos, somebody asked him about the quarter and what he was working on at the end of the quarter, he said, “I’m thinking about the quarter three years from now.”
Taylor Carmichael: [laughs] That’s right.
Travis Hoium: That’s what we should really be focusing on us investors.
Taylor Carmichael: Absolutely.
Jason Hall: It is. One of the things that I think is neat about CAPS, I just want to throw out there too, is it’s actually a tool you can use as an investing journal. You open a new position or you get interested in a company, you make a call in CAPS, you pitch why, talk about what you like about it, and it marks right there in time. I think that’s a really useful tool that probably too many people don’t take advantage of that’s built right there in CAPS, so you can really hold yourself accountable to what you thought at the time. Find out if you were right or wrong.
Travis Hoium: I use it as an idea journal too, because there’s no financial costs. I’ll read an article by somebody and go, “I’ve never looked at that company, but it sounds interesting,” and now it’s on my radar, and it starts popping up the next time I go into CAPS or it reminds me, oh, and it gives you a way to track, “What were those ideas that I had?” Sometimes those are fleeting. That’s another way that I use that.
Jason Hall: The rule that I have that I want to share, and this is something you will see in a lot of the Motley Fool real money portfolios, and that’s buy with a plan to hold for at least three years. We’re buying businesses to let the people that run these businesses do the work. We need to give them time to do the work. Are you going to start a business? If it doesn’t meet your perfect expectations in the first six weeks, are you going to lock the doors and not go back in? I think sometimes we do the same thing with stocks, because it’s so easy to sell and move on. So for me, buy with the intention to hold for at least three years and only sell if some very specific things happen. There’s an acquisition and you’re ready to move on from the business. It’s going to be bought and it’s time to move on. Something has clearly broken with the thesis, there’s fraud, the SEC’s investigating the company, something that’s obviously, clearly wrong. But beyond that, I think really buying and hold it for at least three years and then reevaluate, I think is a really healthy rule I think most people should have.
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