Painful as it was, 2008 was an invaluable learning experience. That may be a
gross understatement. The investment turbulence of 2008 may have been a
formative experience — one of those events that truly molds people and
perspectives for a lifetime. That I managed to only lose -15%
vs. a 39% drop in the S&P 500 takes the edge off a year where I managed
to violate Buffett’s Rules 1 & 2: Don’t lose money.
In this week’s Barron’s, Bill Gross talks about Barton Biggs’ recent comment
that he was “a child of the bull market”, trained to buy the dips and take
comfort in the immutable fact that asset prices always go up over time. 2008
condensed a decade’s worth of dislocations into one year and heavily damaged the
concept of stocks for the long run.
I have no formal training in financing or investing. When it comes to
investing, I am self-taught, mostly through books, as I am with nearly every
other meaningful endeavor in my life. And as much as I strive to take the
lessons of Graham, Dodd, Klarman, Buffett, Greenblatt and other master investors
to heart, you can only learn so much from books. Some lessons can only be truly
ingrained through the crucible of experience.
Living and investing through 2008 allowed me to firmly internalize some of
the fundamental tenets of value investing. Here are some of those tenets which
were reinforced for me by my mistakes, in the words of a master, when
available:
1. “People fail to have sell discipline because they can’t hold cash.” –
Seth Klarman.
Both sell discipline and my utter disrespect of
cash caused me some pain in 2008. In June 2008, I was up +18% for the year and
as recent as September 2008, I was even on the year. The run-up in commodities
had gripped me in its throes. Several positions ran up past my intrinsic value
estimates yet I held on in hopes of even higher prices. Commodities began their
marked descent during the summer and I quickly learned my lesson, selling
Agnico-Eagle Mining (AEM) and Devon Energy (DVN) as soon as prices recovered
near peak levels. I did not include Chesapeake Energy (CHK) in this group
despite its run-up. I view the Haynesville Shale play as boosting CHK’s
intrinsic value and still hold to this (readers can get more of my thoughts on CHK
here.
For me, the second part of Klarman’s admonition,
inability to hold cash, has its roots in much of my macro viewpoints and my
dollar bearishness.
