My dad was in IT back when mainframes and the internet was hot in the late 90’s.
But he got sick of the 9-6 lifestyle and quit his full time position and decided to work as a temp IT specialist and hopped from one short term (1-2 year) contract to another.
It was great during the peak because he was bringing in probably 1.5x to 2x what comparable full time employees were making.
But recessions came.
Then the demand for mainframe computer engineers faded away.
I’m a teenager at this point in time so I don’t care.
But my dad took matters into his own hands and got a barbers license and opened up a barbershop.
Later on, my mom also decided to get a hairdressing license and the barbershop became a salon.
Family finance is back on track.
Then my dad got into stocks.
It was a little at first, but his excitement built and I remember a couple of investment magazines arriving at the door.
He starts moving over savings and equity from the home to his trading account.
But I’m a teenager at this point in time so I don’t care.
Over the following weeks and months, he got deeper and deeper into it. He was beaming, he was excited and he had a bounce to his step.
“I can feed my family easily with the money I. making in the markets” he said.
Weeks and months go by and his beam is gone.
His bounce and excitement has disappeared…
Now I’m in college and my dad needs extra cash for some reason. So with the favor of a church friend, he gets a janitorial position at a large supermarket for Saturday morning before the store opens.
I’m still a teenager at this point in time so I still don’t care.
As long as I’m not disturbed playing my video games.
Well I don’t recall how I started helping, but when Saturday 4am came, we’d be driving down the chilly road, and by 7 or 8am, I’ve finished mopping both sides of about 12 huge aisles, washing the floors, buffing the aisles, cleaning the toilets, and emptying the trash.
So What Happened?
But in a good way.
A month ago my parents came to Seattle for the first time and for the very first time, we talked (or argued) healthily about the past.
He opened up that during his darkest hours, he was down hundreds of thousands of dollars from greed and when he tried to “win” it back, it got worse.
His late night walks was his only escape from home and he would cry and shout out his frustrations and fears.
But those Saturday mornings was a time to slow down the pace, get some exercise and gather his thoughts on tackling the big problem that he was facing.
Fast forward 15 years and time has cured the losses and the hard financial times.
Who would have thought that we would enjoy a week together admiring God’s gift of nature at Glacier National Park and Yellowstone.
Now What Does This Have to Do with Investing?
Well that’s the background I entered with stocks.
I sure had some strong prejudices and there’s a lot to reflect on how I got here.
But here are the strongest lessons that I walked away with.
Lesson #1: You Can Never Go Wrong with Having Too Much Cash
In a previous article where I explained why I’m now more Buffett than Graham, I mentioned how I started seeing bad habits being accentuated with being involved in the stock market.
Previously, I didn’t realize I had this issue, but the stock market and money magnifies strengths and weaknesses.
One of my early weaknesses was trying to keep money invested at 100%.
It had to do something.
I didn’t want the cash sitting on the couch watching tv. I wanted it to go to the gym every day and get as buff as possible.
But don’t take my word for it.
In Seth Klarman’s 2004 letter to investors, he wrote that
Human beings are only endowed with so much patience, after all. Few are able to look past near-term returns, and today anything appears to offer better returns than cash. Also, given their relative-performance-oriented, competitive nature, investors loathe the possibility of underperformance that comes from sitting on the sidelines; they find it better to be in the game (unless, of course, the market drops). Most significantly, they remain highly skewed toward the greed end (how much can you make?) and away from the fear end (how much can you lose?) of the spectrum of investor emotions.
My dad got carried away on the greed end and paid for it mentally and emotionally.
But the cash from that weekly janitorial job signified opportunity and that it wasn’t the end. Ultimately he was able to get back on his feet.
There are definitely other advantages of holding cash which I’ve come to appreciate.
As Klarman puts it again;
The alternative is to remain liquid, defy the steady drumbeat of performance pressures, and wait for the prices of at least some securities to drop. (One doesn’t need the entire market to become inexpensive to put significant money to work, just a limited number of securities.) This path also involves risk in that there is no certainty whether or when this will occur; indeed, securities prices could rise further from today’s lofty levels, making the decision to hold cash even more painful.
However that pain doesn’t come anywhere close to the suffocating pain that companies like Lehman Brothers experienced due to lack of cash before going bankrupt.
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Lesson #2: Time is the Friend of the Individual Investor
Time is the friend of the wonderful company, the enemy of the mediocre. – Warren Buffett
Time is also the advantage that an individual investor has over traders, institutions and other professionals.
An individual doesn’t have much of a chance against institutional investors when it comes to short-term trading. Trading is a zero-sum game so a successful trader’s win comes from another trader’s loss. Small investors can’t compete with the machines and the tools that institutional investors have.
These pros have color coded keyboards so that they can put in an order with a single keyboard stroke, they have access to information much quicker and their trading fees are much lower.
But as an individual investor, time is a key advantage.
Institutions have offices and employees they have to pay, they have quarterly performance reviews, and if something doesn’t work out in a few months, they are forced to liquidate despite how promising an investment is.
For the most part, I prefer to hold stocks for at least 3 years to give it time to work out.
The obvious losers I sell quickly, but for stocks like Syntel (SYNT), where outsourcing will only increase as the world economy grows, it gets a 3 year window. It’s a much different feeling to having upper management breathing down your neck with your job on the line.
History also shows that longer time horizons yield better results.
Buffett’s bullishness on the US economy has proven right every time someone challenged him to it.
E.g. the S&P500 since 1990 has been higher in 64 percent of rolling 3-month periods.
Go from 3 months to 12 months and it improves to 72 percent.
Keep extending the time frame and the results get even better. 5 year holding period is an 89% win, 10 year holding goes up to 96% success and finally, a 20 year horizon yields a perfect 100% rate of success.
Time heals wounds.
I don’t know how long it took my dad to recover, but it sure wasn’t a year or two.
Lesson #3: Cleaning Toilets is Therapeutic
Did I just say that..?
Ok it’s more like the jolt you get from an event you weren’t suspecting, and then nothing else in the world seems important.
There are times where you just need to tune out what the market is doing, or if you find it difficult to tune out, go out to some new, fun, dirty or crazy place. It’s amazing how well it works and clears your mind to make better decisions.
Regardless of what the economy or market is doing, sometimes unblocking a toilet is what you need to just unplug.
When you’re in the same environment, surrounded by the same things, same people, you miss out on the chance to see things in a new light.
My dad could have curled up on the floor and wanted to die.
Maybe he did, but he also took a small step towards what turned out to be the right direction by taking things into his own hands.
Although it’s been 15 years since I was a part time janitor, I learned the value of money, the need to let money work for itself, the importance of being fiscally responsible and the damage affects caused by greed.
All from mopping floors and cleaning toilets.
Ask any college aged kid what they want to do and count how many answer with “janitor”.
But I wouldn’t trade the lessons and experience for the world because it’s made me into a better investor.
And thanks dad.