Don't Lose Money

Ari Kuchinsky writes about the stock market, technology and often the intersection of the two.  

This time of year is a hoot. For no good reason, we place an artificial line between the prior year and the new year. Even the most confident analysts do not publish predictions for a year ahead in May. Yet, many analysts feel empowered to fire up their crystal balls in December and January.

Unless you run a fund and need to publish performance metrics based on time frames, it is arbitrary to judge performance on a yearly basis. I’m 32 years old. My investing performance started in my early 20s. My investment performance will end when I die. Those are the only time frames that matter for the individual investor. The beginning and the end.

In one my last blog posts in 2010, I wrote that I wasn’t very interested in buying stocks aggressively at their current prices. The S&P 500, Russell 2000 and Nasdaq Composite are all below their 2007 highs. I also want to see the S&P 500 break its 2000 high. It acted as resistance in 2007. But, we are not so far away from breaking through the prior highs. If those highs are broken, I’ll believe that a new chapter is starting and I’ll get more optimistic. Until then, resistance is too close and this is not a good buy point for the general market. I’ll invest more at higher prices or at lower prices, but not too much here. I’m being very selective in this market. And being selective is very tough in a highly correlated market.

My return wasn’t great in 2011. Somewhere around 1.5-2.0%.  I made under 5 trades the entire year and I had almost no money in the market. In a more typical year, I have hundreds of trades.

I’m not a Buffett guy. I generally laugh when people tout that they invest in great businesses at cheap prices like Warren Buffett. Well duh, the skill is in identifying great businesses and buying at a cheap price.  But I digress, I do love Buffett’s rule #1. “Don’t Lose Money.” The rule is terse, but it has a lot of substance to it. If you can simply avoid big losses, you’ll likely be ok. With a little investing prowess, you’ll do really well.  The Fed’s 0% interest rate policy is eating away at my money, but I’m not going to let it force my hand into a bad risk/reward profile. Over a 30 year period, it is much easier to make up for some years with low returns than it is to recover from large drawdowns.

Because I don’t measure my investing performance in years, sitting out for a year or more isn’t a big deal. I look back at 2011 and see the high volatility and an unchanged market. I suspect I missed a lot of frustrating stop outs. Everyone seems to be saying “it was a tough year.” In my book, missing a tough year is a big win. I’m glad I missed out on the laughs.

I do feel refreshed. If the market proves itself by making new highs, I’ll examine buying more aggressively. If prices fall significantly, my eyes will get bigger. Until then, I’ll play it small and I’m going to be very selective. I don’t have to play every hand.

About Ari:

Ari has been watching stock prices since he bought one share of duPont in the fifth grade and has been a computer geek since he started visiting and running bulletin board systems (BBS) in the late 1980s. Professionally, Ari is a commercial real estate attorney in Austin, Texas and holds a law degree from Vanderbilt and a business degree from the University of Florida. The opinions expressed by Ari are in his personal capacity and are not associated with any other person or entity.

Follow Ari Kuchinsky on Twitter:  @arikuchinsky