Peter Lynch, the famous stock investor said, "If you don't understand what you own, you're toast". Here are my thoughts on that...

If You Don’t Understand What You Own

If you don’t understand what you own,
You’re sailing blind through tempests blown.
The numbers rise, the tickers spin,
But hollow faith won’t save your skin.

The market hums a siren song,
Of easy wealth, of getting strong—
Yet shiny things can rust and fade,
When bought in haste, in hope mislaid.

Know the bones beneath the name,
The story, not just fleeting fame.
Each stock’s a life with pulse and thread,
A business breathing, earning bread.

If you don’t grasp the work they do,
How profits flow, how losses stew,
Then you’re the gambler, not the guide—
A passenger, not one who drives.

For wisdom’s found in steady sight,
In learning slow, in reading right.
Understand, before you own—
And you’ll stand tall when winds have blown.

From the Foolish Notions archives:

Minoo Jha

 · 6y

What's something about the stock market you wished you knew earlier in life?

Hi Francisco, You asked, What's something about the stock market you wished you knew earlier in life? Here are some that blew my mind in the early days (the surprises were all related to some foolish notions I had): 4 Foolish Notions I Had About Stocks And How You Can Avoid Them Foolish Notion #1: Great products equal great stocks I used to think if a company made a great product, it would ring up huge sales and net huge profits. What a quaint idea. For a classic example (where experience put paid to that idea) consider Tivo. Tivo invented the DVR. Tivo’s DVR is the #1 DVR in the market. But has Tivo’s stock gone anywhere as a result of it? Type the ticker into the search box at Yahoo Finance and see for yourself. Profits and consequently, stock price appreciation, have continuously eluded Tivo. Lesson to be learned: Don’t equate a great product with a great stock buy. Whether the company is Tivo. Or Vonage (whose product I love and have enthused about in the post 4 decisions I wish I had made earlier). Or Krispy Kreme. Even if you find their donuts irresistible, you may want to read my cautionary post How I Lost A Thousand Dollars on Donuts. Where I confess to foolishly trying to ape Warren Buffett and to one of my most painful and humiliating investing blunders. You don’t want to lose money that way. And you don’t want to lose money by making the mistake of investing in wonderful products that do not have wonderful companies attached to them. Foolish Notion #2: Conglomerates make good investments I used to think if a company had its fingers in many pies – meaning it was a group of companies rather than a single company (usually referred to a conglomerate) – it was a superior investment to a company with just one line of business. Bone-headed thinking! Not only are companies with widely different businesses daunting to manage (think of the Lilliputians trying to deal with Gulliver which explains Jack Black's appearance in this post), shady and shadow accounting is also a much higher risk with them. So if you are invested in one these conglomerate companies, I suggest you keep a close eye on them. And if they decide to break themselves up into different businesses each focused on its own area of strength, say a hallelujah! It’s what shareholders of Fortune Brands are probably saying, now that FortuneBrands has decided to sell its Titliest golf balls business, its Moen faucets business, its Master Lock business, in fact all of its non-core businesses. Once the sales are complete, Fortune Brands (which will be renamed Beam) will be able to concentrate on just one business, its core business: wine and spirits. Lesson to be learned: If you are tempted to invest in a conglomerate, whether United Technologies or GE or Fortune Brands, you should do so in the knowledge that you are being self-indulgent and that a company with a single line of business will usually fare better as an investment. And don’t be surprised to find that sooner or later, the conglomerate itself will come to the same conclusion and move to sell or spin-off non-core businesses. Foolish Notion #3: The Daughter Ship is Not As Good as The Mother Ship Sometimes when a company owns more than one line of business, it will decide to spin off a secondary line of business to shareholders. The spin off might be an automatic spin off. Or it can be one in which you as a shareholder, are asked to choose whether you want to continue to hold all your shares in the holding company, or to exchange some of them for shares in the company being spun off. What should you do? My advice (and I learned this through non-buyers remorse) would be to exercise the exchange option, even if you are nervous that the daughter ship may not do as well as the mother ship. A classic example is when McDonalds spun off Chipotle. Had you declined the offer to exchange some of your McDonalds shares for Chipotle shares, it would have been a serious mistake. Because Chipotle has increased 12 fold since it was spun off from McDonalds. Whereas McDonalds, while being on a tear itself, has only doubled in price. Lesson to be learned: If you are given the option to exchange some of your shares for shares in a company being spun off, always always exercise the option, even if you are a Nervous Nellie about it. You should exchange a small percentage of the mother ship's shares if that's all the courage you can muster. Foolish Notion #4: An Investment is Happily Ever After My post Yoga for Investors aptly sums up my philosophy about investments. I have developed a gritty Till Death Do Us Part determination when it comes to investing. However, I've learned that plans to stick with a stock for better or for worse, for richer or poorer, in sickness and in health don't always pan out. Just as bonds sometimes get called away, I have discovered cherished stocks can also get snatched away from one's portfolio in the blink of an eye. How? How is when a company you are invested in gets taken private. This is what happened to the shareholders of Neiman Marcus (Needless Markup, as my boss Judy used to wryly call it) - when it got taken private in 2005. And this is also what happened to the shareholders of Allied Domecq. Shareholders in Allied Domecq, the company that owned Baskin Robbins, Togos and Dunkin Donuts, were denied the privilege of baskin' in the sunshine of lifelong ownership. Because Allied Domecq sold itself. The Baskin Robbins (reason you might have bought Allied Domecq in the first place if you are like me) and Dunkin Donuts part of the business went to a clutch of private equity firms. The rest of the business (the bread and butter alcohol and spirits business) was sold to Pernod Ricard. And that’s how there was no Happily Ever After for Allied Domecq shareholders. Lesson to be learned: Don’t get too attached to the shares you buy. Private equity and other companies can snatch them away from you at a moment’s notice. Of course M&A doesn’t always result in a Where Did My Shares Go experience. Sometimes there’s the head-spinning (think Linda Blair in Exorcist head-spinning) Whip Lash experience, in which the original shares you bought are subjected to relentless M&A, so much so you get whip lash from keeping pace. For instance, you may start out by owning SBC shares, only to find out your SBCshares have become Comcast shares, only to find out your Comcast shares have become Cingular shares, only to find out your Cingular shares have been rechristened AT&T. This is the Whip Lash experience. The Allied Domecqexperience is different. In the Allied Domecq scenario, you have to bid your shares goodbye as they vanish into some private equity portfolio or get swallowed up by a larger company in an all cash deal (as Skype was swallowed up by Microsoft recently). Since both these scenarios happen quite frequently, my advice to you is to practice detachment from your shares from the get-go. It will save you from heartbreak and acute SWS - Share Withdrawal Syndrome.

More Foolishness:

Minoo Jha

 · 6y

What are some stories about failure that can teach us some valuable life lessons?

Hi, You asked, What failure was actually a great life lesson? Losing money by investing in Krispy Kreme Donuts. Here’s the story from my blog: How I Lost A Thousand Dollars On Donuts There comes a time in every novice investor's life when he or she thinks they've found the Holy Grail. The Holy Grail is an investment theory or investment method that seems devilishly clever and original to the novice investor. One which gets them as excited as an archaeologist unearthing the tomb of Tut-Ankh-Amen. And which they just can't wait to hang their hat on. This investment 'find' could be any of a number of ideas. From the Dogs of the Dow Theory authored by Michael O'Higgins. To the Elliott Wave Theory popularized by Robert Prechter. From Joel Blatt's Magic Formula. To the Price to Sales Ratio which made Ken Fisher's 1984 book Super Stocks a best-seller. The novice investor will suddenly come upon one of these ideas and allow it to agitate the gray cells for a while. Then there's Warren Buffett. For the novice investor, discovering Warren Buffett is something else altogether. After all, he is one of the richest men in America. And he is also recognized as one of the greatest investors of all time. So no surprise that investors, novice and professional alike, become instant Warren Buffett groupies - hanging on to his every word, worshiping at the Berkshire Hathaway Annual General Meeting in Omaha, and dreaming of being a future Buffett. This is where my sorry tale begins. The Buffett Make-over I was just as susceptible to the Buffett investing charisma as anyone else. And after finding Buffett, I set out to remake myself in his image. This meant reading books such as The New Buffettology. And The Warren Buffett Way. And then getting down to business by applying essential Buffett principles. Bottom-fishing was particularly appealing. It allowed me to consider dog-house stocks such as Revlon, Rite Aid and Six Flags, which were all under $2 a share, maybe even under $1. But not content with that, I searched for what I thought would be the quintessential Buffett pick - an out-of-favor and under-valued stock, the one that Mr. Market was idiotically shunning. Enter Krispy Kreme Donuts. I have never been much of a donuts fan. But at the time, I discovered Krispy Kreme, I had become a heat-seeking Buffett missile in search of a target. And Krispy Kreme Donuts (Ticker KKD) appeared to be the answer to my prayers. Firstly, their cream and jelly filled donuts had become the new "delish" in donuts. People were shunning their corner donut stores and trekking to Krispy Kreme stores instead. Just Like Starbucks In fact, they were even willing to stand in long lines to get their Krispy Kreme donuts. Much as they do for Starbucks Frappuchinos and Lattes today. And just like Starbucks, Krispy Kreme donuts were pricey. All this had a distinctly Buffetesque aroma to me. Reading Motley Fool articles like this one sealed the deal for me. So when Krispy Kreme stock, which had stratospherically climbed to $40 a share, dropped overnight by 50% to $20 a share on a car-wreck of a quarter, I decided to lock in. And bought 100 shares. There - I had bottom-fished. Just like my hero Warren Buffett. I couldn't have been more pleased with myself. Or so I thought. Fasten Your Seat-Belts I was to find out (the painful way) that Krispy Kreme's 50% decline was just the beginning of its Drop-Zone like descent. By the same time the next year, the stock had declined to $10 a share. Giving my investment a 50% haircut. $1,000 gone. Just like that. Chastened and humbled, I took the loss and got out. The Flight of The Bumblebee I read somewhere that according to the Laws of Aerodynamics, a bumblebee should not be able to fly. The bumblebee of course does not know this, so it flies anyway. In much the same way, novice stock-pickers do not know that they don't know how to pick stocks. So they pick stocks anyway. Sometimes the picks pan out, sometimes they fall with a thud. When that happens, some investors will never be able to psychologically recover from their mistakes and losses. Others, phoenix-like, will rise from the ashes. I am of the second kind. I was able to take my medicine and move on. Are there rewards for naivety in investing? Actually I was able to make lemonade out of this investing lemon. I took my Krispy Kreme misadventure and turned it into a speech. Which I used to compete in a Toastmasters International Speech contest at Adlibmasters Club in San Jose. I won first place. And took home a trophy. Yes the mysterious Oscar looking thing you see above is my Toastmasters International Speech trophy. Now if only there had been some bling to go with that thing. You know - Like maybe a 1000 dollars? Oh Well... If You Are Ever Stuck With a Lemon, See If You Can Make Some Lemonade Out of It :) May You Invest Well in 2019 and Thrive!

Wisdom at last:

Minoo Jha

 · 6y

What important financial rule do most people break?

Hi, You asked, What important financial rule do most people break? They think they have to act on every piece of news. I used to do that too. Until I realized I was losing more than I was gaining. Since then I have followed an investing philosophy I call Yoga for Investing. Want to know more? Read on… Yoga For Investing What if I told you there was an asana ( which is another name for a Yoga Pose) that would make you a better investor? There really is. If you practice this asana day in and day out, year in and year out, your investments will bring you more fruitful results. Don't believe me? When I found out about this asana, I was skeptical. I didn't think it would work. But I decided to give it a shot, anyway. After faithfully practicing it for a few years now, I am convinced it works. Ready to be let in on this secret asana? It's called "Sitting on Your Hands Asana". You will require the following to practice this asana. First, you must be invested in a diversified basket of stocks, bonds and money market instruments. You can throw in a small portion of precious metals as well. Then you need a comfortable chair. Note: This asana requires your hands to be immobilized for a lengthy period of time, so if you have carpal tunnel syndrome or arthritis, you should practice this asana after consulting with your physician. Ready? Ok, here we go... Stand up in front of your comfortable chair. Putting your hands behind you, lower yourself on to the chair so that you are seated on your hands when you sit on the chair. You are now in the "Sitting on Your Hands" Asana. This is the most effective asana for investors, once they have got their diversification and asset allocation right. You should practice this asana daily. You can add a chant "I Will Sit On My Hands", "I Will Sit On My Hands" for more impact. But you MUST practice the asana every day. When you see the market go up and down wildly...Sit On Your Hands. When Nouriel Roubini and Meredith Whitney strike terror in your heart on the CNBC airwaves ...Sit On Your Hands. When a friend gives you a hot stock tip ...Sit On Your Hands. When you see some ads for some tempting High-Yield opportunities ...Sit On Your Hands. When a dear relative tells you about her day-trading success ...Sit On Your Hands. When an Options Trader tells you about the easy money he makes through trading options ...Sit On Your Hands. When the stock of a well-run and established company in your portfolio takes a dive because of a less than stellar quarter ...Sit On Your Hands. When you are tempted to cash in on your winners and hold on to your losers ...Sit On Your Hands. When the Republicans scare you about tax increases on capital gains, dividends and income and the Democrats scare you with more government spending ...Sit On Your Hands. Unless you really believe you know something others don't (and if you do either you are a genius, or it's illegal) ...Sit On Your Hands. The "Sitting On Your Hands" Yoga Pose will protect you from your own worst enemy ...YOURSELF! Note: You should repeat the "Sitting On Your Hands" asana until you have internalized it. Once you have, you can put your Lululemon Gear and Yoga Chair away. But I will leave you with one final thought. John Bogle of Vanguard says "Investments do better than Investors" Wonder Why? Simple. Because few investors have mastered the art of "SITTING ON THEIR HANDS!"

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