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investing is a personal thing you have to do it by yourself you don't do it with a committee you have to be able to have the emotional strength to stand the volatility of the market in general and stocks in general if the key organ here is not the brain it's the stomach you have the stomach for this do you have the patience for it you should be able to look in the mirror and say to myself what am i going to do if the market goes down if you want to double your money quickly and safely fold it in half and put it in your wallet any other way you're simply gambling a good stock can take two three even five years before it really pays off it's not two or three weeks it's not two or three months my best stocks have been my fifth sixth seventh year give your investments time to grow many people ask me when is the right time to sell a stock selling stocks is a matter of comparing stories if story a is better than story b then sell b and buy more a if you own eight companies you're playing eight simultaneous games of poker so only stay in the games that you have the best chance of success but remember that stories rarely change overnight it may take years for a good one to be recognized by the market give your good stories the time to grow your advantage in picking stocks is your direct experience with companies as a consumer on your job as a professional or as a neighbor use those advantages as a place to start looking for good stocks you have several things that you possess that will make you a good investor they're inherent to your life it's the field you work in it's the area where you live there may be some local company that's terrific you're a consumer you see some products you see some services that are terrific we bought a volvo it was better than the american station wagons it was safer the price was right i did a little bit of research i found that volvo the stock as a swedish company was selling equal to its cash you're paying almost nothing for the company they had lots of other divisions that were doing terrific sometimes people take things for granted my feel was the mutual fund industry in the early 1970s the industry grew slowly but then it took off in the 80s money piled in to money market funds to equity funds like an idiot i missed stocks like dreyfus pioneer t rowe price strategic investments franklin resources there's lots of companies that went up dramatically these are my own field all i had to do was buy these things it was really dumb back in the 1950s a fireman from new england noticed the factory in his town seemed to be hiring and expanding all of the time this person didn't have a crate computer he wasn't a professional investor he was just an observant neighbor he decided to put two thousand dollars per year into tam brands then called tam pax by 1972 the fireman was a millionaire just from using his local edge if you know something that will drive a company's earnings higher you know something that will drive the company's stock higher sooner or later but you can't just guess at it you have to have some reasons such as costs are coming down our new products gonna be a big hit research is developing a company story an idea of why earnings should go up or down it doesn't mean sitting in the library for hours reading sec filings or fiddling with a calculator research is exciting it's very little math when i owned chrysler was the biggest position in my fund when i was at a movie theater at a sports event i'd run into somebody driving a minivan i'd ask them what do you think of the minivan would you buy another one what do you like about it people some would say well it's a little underpowered they only have a four cylinder engine i knew they were already working on a six cylinder engine so this is research research starts with the things you know your edge if you're a mechanic look at the tools you use which are the best which are the best value or if you're a doctor see what new technology saves the insurer money or software systems that reduce costs at hospitals you probably already know a few companies quite thoroughly the amateur investor probably can follow between five and eight companies they could lecture in these five or eight companies they know them very well there's ten to fifteen thousand public companies united states there's lots more overseas so you don't have to be experts on lots of companies you just have to know a few very well i own dunkin donuts for 12 years i think i might talk to him once every year the story didn't change a lot you don't have to worry about low-cost imports coming from korea when you own a donut company you don't have to worry about the economy you don't have to worry about in some inventing a new computer chip the story doesn't change that much mcdonald's earnings have gone up i think more than 80 fold over the last 30 years the stock's gone up 100 fold what made mcdonald's earnings continue to grow if they just stuck with a cheap cheeseburger and a cheap hamburger at lunch they probably would have run into earnings problems 10 15 years ago but they expanded their menu they kept their costs low they added breakfast they went overseas every day they had two or three more restaurants people thought there was no room for more mcdonald's five ten fifteen years ago they were wrong if they had done the research they said well there's a couple hundred countries out there there's lots of places to grow and you had to figure out what inning am i in this baseball game i sold toys r us way too early it went up 20 fold after i sold i did the same thing at home depot those are probably two greatest mistakes ever made when should you sell well you ought to find out why you bought a stock if you're saying it's a cycle company and they're doing poorly and they're doing awful you wait till things are getting better they're doing terrific and then you sell it but with a growth company you have to say walmart's case 10 years after they went public you could have bought the stock and made 500 times your money because they still are only in 15 the united states and they could say why can't they go to 17 why can't they go 19 why can't they go to 23.
so for the next four decades they're around the country so you have to say to yourself in this stock i have a 10-year story a 20-year story i'll be able to write that down and follow that that's what i do with the company and that's your decision that's how you sell it we have a novel element from many investors today in the trust issue we also have security problems that we didn't traditionally have in america have they changed the way you pick and believe in stocks no you still buy a company and you buy a company to grow and if it's a textile company or it's an electronics company a software company you better understand what they do and and if they do well the stock will do well no matter what happens the market if the dow jones today was a thousand or 500 you had made a lot of money mcdonald's you would have made a lot of money in johnson johnson you want to make a lot of money gillette these companies earnings have gone up a lot the last 30 years and if the market was 50 000 you would have lost money in burlington industries i recommended that in 1969 i think it's i think it's gone from 34 to 2 with no stock splits these earnings been terrible well your modesty actually makes an important point which is people with the best batting averages in the world don't bat a thousand i sometimes get angry mail particularly during bear markets saying so-and-so recommended such-and-such and it went down well uh how often did you come up with a clinker well this this is a funny business you don't have to write even five times out of ten if the times you're right you make a double and triple it offsets all those times you lose twenty or thirty percent so when you buy a cycle to yourself how much can i lose and how much can i make and you ought to be able to make a lot you see stocks are risky i mean look look at how much we lost on att look how much less than xerox these were quality companies you know you could lose a lot in the stock so i say yourself how much can i make because i want to buy a stock if i'm right i'm going to make a double or triple does your own confidence ever get shaken every day i think the market's going to go up you know i keep calling a lot of my company so i keep calling the company can you be greedy in your business yeah i think sometimes you you i i call it the three c's it's called complacency concern and capitulation so you complacent is the i don't agree just everything's going right you sort of forget to check the facts you say things are starting to slip in the comments not the fundamentals they're starting to mature the same competitors coming along so being complacent is the worst one and then that's the one that that happens most often yeah well if unless you're working hard if you're working hard you're always checking with competitors you're checking with customers suppliers you're trying to do work to find out is this company still early am i does they have years and years of growth ahead of them then you stay with it you know the stock goes down there's also this idea never invest in something you don't really know you i mean that's that was part of that's why you went out on the road so much right if i don't understand that i don't want to yeah the key thing is when the stock goes from 10 to six if you understand what they do and you know they're financially solvent you're fine if you don't understand it you can call the psychic hotline but if you don't understand it you're probably gonna do the wrong thing you know if you understand exactly what they're doing instagram ten to six you'll buy more if you're confused to start with you'll say well there must be something wrong there and then you you're out and a lot of times stocks are going to decline i mean so my best stocks were going from 18 to eight then to sometimes to 40 and some gone from 18 to zero but at least i wasn't adding to it on the way to zero a lot of ground so if it's going down you're not adding to it i mean sometimes you are if the fundamentals are getting better are the same yeah but if they're deterring
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