“Cockroach” school of investing
It is amazing, the little things that you remember about someone. My grandfather on my father’s side lived in Germany and would come to Canada to visit every summer that I can remember. There are two things about him that continue to stick in my mind, the second I think of him: How he walked and how he ate. Both were slow and deliberate. He would walk slowly but with purpose. He always had his hands clasped behind him as he walked and would rarely walk for more than 20 steps before he would stop and gaze at something, anything, for a half minute, then carry on. The way he chewed his food was somewhat similar. I never actually counted but I would guess that he chewed each bite of food at least 30 times, each time slowly and with purpose, before swallowing. And much of his contribution to the dialogue around the table occurred after he was finished his meal. He lived to 86. Chewing your food well is considered one of the habits common to those who live long and healthy lives. Here are the reasons why you should not “scarf down” your food: They say the first step in digestion is in the mouth (actually I will argue that one, because even the sight or smell of foods, or hearing Pavlov’s bell, can make you salivate). It is in the mouth that saliva begins to break down food so that it is ready for the next step in the stomach. Mastication or chewing, grinds the food up and exposes more of the food surface to the digestive enzymes found in saliva. Eating slower gives the brain a chance to catch up to how full the stomach is. The physical feeling of your stomach being stretched to (or beyond) capacity along with hormones of satiety are what gets you to stop eating. But there is always a delay. Eating slowly allows for the brain to figure out that you are comfortably full, before you are painfully full. Those who eat slower tend to consume less calories and are less likely to be overweight. I recently attended a function where a five course meal was served over a two and a half hour period. When the first plate was put down in front of me, the serving looked meagre (tasted awesome) but I whispered to my wife that we will probably have to go through the drive-thru on our way home if all five course are going to be as small as the first. Well, all courses were that small but I could not believe how full I felt by the end of the evening. Gas. Bloating. Not pleasant in the least, and while gas can be formed anywhere along the digestive path, eating too fast may cause you to swallow air. Air is meant to be breathed, not swallowed. Enjoy your food. I knew of someone who often used the phrase, “Food for fuel, not for fun.” In other words, he thought of food mostly in its purpose to fuel us, rather than to give us pleasure. If this was the case, then why did God give us taste buds and chocolate? Eating slowly, enjoying each bite, can be relaxing. Try never to “eat on the go.” We were meant to sit...relax...eat. You are probably better to eat that burger and fries when you get home, rather than at the four-way stop. Throughout history, meal times have been meant to be social occasions; a time to catch up with family and friends, or to celebrate. Taking the take time to socialize, to be amongst those whose company you enjoy, improves your emotional wellbeing, and is another ingredient to living a longer and healthier life. Why rush through one of the greatest sources of pleasure that has been given to us? My friend retired two years ago and has done tremendously well in the market, for a novice.
Starting from no experience, he learned what to look for and did his homework research. Initially, he didn’t know that markets fluctuate so much. He made a few mistakes like everybody but has more than recovered from them.
Right from the beginning, I sensed a potential weakness in his investment makeup. He is what is called a Type A personality. He can’t stand still. He likes action.
That can be a recipe for poor investment decisions. The other day he trotted out a stock for me to look at. He bought some around half the price it was a few months ago and is looking for a quick rebound in price.
The 10-year-old company has grown really fast, doubling assets in the last five years, took on a big contract, purposely knowing the bid was low and lost a bundle when costs came in too high.
My friend saw a tempting opportunity, for a nice quick gain on a price rebound.
I explained the ‘cockroach theory of investing’ to him. You never find just one cockroach alone. Then I proceeded to look for several potential cockroaches lurking in the corner by the baseboard.
Why did they purposely bid so low? Why did two senior executives suddenly retire? Why is key information on the geographical sources of business missing? Are there other purposely low bid contracts out there? The company has lost money for two quarters in a row.
A wise young Moose Jaw stockbroker (Mag Nelson) gave me an investing hint about 45 years ago that I try to always keep in mind.
There are three kinds of investment moves: investing, speculating and gambling. Before you invest, figure out which one you are doing and if it’s the right fit for you.
The ‘investing’ buyer only looks at a sure thing, an established, well-financed, wellmanaged, dividend paying stock unlikely to have problems.
The ‘speculator’ looks at much riskier stocks, calculates the pros and cons of owning shares in the company and makes a well-informed speculation on the stock. Being armed with lots of good information is key to decisions.
The ‘gambler’ likes action. The gambler risks cash on a good story or a possibility or on a whim.
What my friend did with a bit of information from his online broker’s stock screening program was gambling. With the information I provided and what he will now dig up, it becomes a speculation.
There is nothing wrong with either of the three investment choices; just know which one you are doing and make sure it suits your style and depth of pockets.
Gamblers need deeper pockets. They will lose money and lose most often; speculators less often; investors, not very often.
So what did I tell my friend about Macro Enterprises? “You own it. Be careful of further price losses.” CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments. Ron Walter can be reached at ronjoy@ sasktel.net