The Life of a Stock Picker and What Andrew Learned After Years of Investing

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3:55I love this podcast because it crushes your dreams of getting rich quick. They actually got me into reading stats for anything. You're tuned in to the investing for Beginners podcast. Led by Andrew Sather and Dave Ahern. Step-by-step premium investing guidance for beginners. Your path to financial freedom starts now. Starts now. Welcome to the Investing for Beginners podcast. Today, you are stuck with me. I'm going to do something a little bit different. I got feedback from my little brother that we had a big, big change. If you guys have followed us for a while, I'm sure you've noticed. We kind of got insight into why we made the change, why I stepped down from the investing newsletter that I ran and kind of have walked away from spending a lot of time actively stock picking and giving it to somebody I trust to manage that part of my life and our business.

4:57And my little brother mentioned that I never really shared kind of why I did it and sort of like what led me to make that decision. So thank you for your patience. I know it's been a while. It's taken some time. I can finally breathe and process all this crazy transition time. So I thought I would share some of my journey, some of my stock picking journey. I haven't been stock picking since 2012, which might make me the oldest stock picker in the room. And so I've noticed a lot of things. I've tried on different investing styles. I've lived through different stock market environments, economic environments, things like that.

5:42And I'm sure we all know and understand just because somebody's been doing something for a long time does not make them necessarily knowledgeable or wise about that topic. and I've definitely had times where I spent years and didn't really grow as a stock picker. Other times I felt like I grew a lot in just a couple of years as a stock picker. So I'm hoping to share some of the journey, share some of the things that have been going on in my life and maybe that gives a little more context into everything we've had going on. I mean, super, super exciting times, not just with the podcast, but also just in the markets and the economy.

6:24A lot of scary times too that can come with change, but a lot of good things. So the way I thought I would present this is inspired by a book that I really enjoyed. And so I'm calling this episode The Life of a Stock Picker. And I'm going to give 10 principles, if you will, inspired by this book that I think allows us to dive into some of the nitty-gritty and some of the real-life stuff that comes with stock picking. And hopefully it's good. Hopefully it's helpful. Hopefully it inspires you. And I hope that it inspires somebody to take that next step that they need to take in their journey so that they can become a better investor or improve their personal finances or have a better financial future through making smart decisions today.

7:18So with all of that, I'm going to jump in. And before I do, shout out to Mr. Logo Range. I appreciate your feedback. Love you, brother. So here we go. First principle is approach this with a clean slate. and I know that's kind of hard because we're all uniquely made and we all have our strengths and our weaknesses, the things we're interested in and the things that we are not so interested in. And I've noticed in my life personally that when I go through different seasons, if you will, or different experiences, I tend to want to overlay those experiences onto my next adventure. So, and I think there's a lot of truth to that.

8:14I think we can learn from failure and I think we can learn from really any experience that we have in our life, any relationship we might have. And you can use those things, and I have, to help me level up whatever next pursuit I'm doing. And so I think a lot of us, myself included, took those mental models or those frameworks and tried to apply them to stock picking. Mental models is a phrase coined by Charlie Munger, and I'll probably quote him at least one more time on this episode because he was one of the most brilliant investors to ever live. We call the mental model something where it helps you understand a part of life.

9:02And he used the example of you could take biology and you can take psychology and you can take principles from those areas of study and apply them. Actually, those work pretty well in the stock market, which some stuff applies well, some stuff doesn't. But the advantages of that is if you have a deep understanding of the way that ants and anthills work, you can actually use that to understand some of how the market can work. And so what that does for us, and it's a powerful tool, very powerful tools, it allows us to fast forward our learning journey. Because if you can apply a mental model from one place to another, you've already learned the mental model.

9:47And it makes whatever complicated new topic you're trying to learn a lot more easy to understand because you already understand the structure. You already understand how there are parallels. And there are a lot of great parallels. And I'm not trying to completely disparage that idea. But I am trying to say that sometimes we can take that a little bit too far. And I know I have, and I know I continue to, because none of us want to feel like our life was wasted. If you have adversity or struggle, you always want to feel like that that had purpose. And I'm not trying to say it doesn't, and I'm sure it does, but we have to be careful that we don't over-index on that and try to make the stock market something that it's not.

10:31And it can lead to some frustrating side quests or distractions. So I would say if you can approach with a clean slate as much as you can, that allows you to see the market for what it is and not what you want it to be. See personal finance for what it is and not what you want it to be. See investing for what it is and not what you want it to be. And what that does is it kind of opens up the bandwidth to allow you to learn new concepts. And again, just really learn the things that matter and discard the things that don't. And I think that applies very much so to stock picking. So what's the actual takeaway for that?

11:20I know we hate reading books. Some of us, my wife, she loves reading. I love her. But some of us will read with purpose or intention and maybe learn to become a reader as we get older. But I don't remember where I heard this, but books are one of the most best life hacks. I didn't use that word. but you get, there's no, I can't think of any other way other than like being able to have a conversation with somebody, which is not, we're not allowed, you know, we're not able to have conversations with anybody we would have want, but you're able to take somebody who's achieved a lot or have learned a lot over decades and have that wisdom.

12:09And you basically are able to download all of that. And I'm not talking about a five-point summary that you would get in a little prompt box. I'm talking about the deepness, the immersion, being able to live life in their shoes through a book. And you really can't get that anywhere else. And so that's why we talk about books a lot. We talk about reading a lot. If you're new to the stock market, beating the street, and you want to stock pick, by the way. If you're new to the market and you don't want to get into the stock picking, you can get away with listening to Evan's section of our show at any rate, and you're going to be miles ahead of so many people and you're going to do just fine.

12:50But if you have the stock picker bug, and this is an episode for stock pickers, if you have that bug and you want to improve, you got to read books and you got to read the good ones. So I would start with Being the Street by Peter Lynch. The Intelligent Investor, if you can grind through that. We've mentioned that one a lot of times. And then if you're more of a biography type of reader, I would recommend Warren Buffett's Snowball. That's a massive book. But even if you read a few chapters, I think it can help you get good insight and maybe spark some interest. And then you just kind of go down the curiosity path and find great books that other investors have recommended.

13:28And that's going to get you so far. If I did one thing right, that was something I did and I'm glad I did. Moving on to the second principle, try to find the good in every strategy. The stock market can be very overwhelming because there are so many different people now who talk about the stock market, certainly more so than when I first started, which is awesome. There's so many great ideas that are thrown around and the level of analysis in the stock market is so deep. And it's amazing. It's one of those things, man, you wish that was around when you first started. But I would... And maybe this is just something that is just an Andrew problem and not everybody else.

14:21But I would caution throwing out the baby with the bathwater. You hear something that somebody says that you don't like and then you just say, ah, their opinion doesn't matter or I'm not going to listen to anything they have to say because they said that Apple is overvalued and how dare they because I love my iPhone and Warren Buffett is the greatest investor who's ever lived and he obviously put billions of dollars into Apple stocks. So this person said Apple's expensive and so I'm not going to listen to a single thing they say. That can be a dangerous thing, just as dangerous as coming to a place with a completely clean slate.

15:00Because if you are too judgmental and too dismissive of other people and their ideas, you will miss a lot. And one of the things that if you go around and you try to learn about the stock market, you try to learn about stock picking, I do believe with enough time, and it takes time, you're not going to be able to do it on day seven. But over enough time, I think you'll be able to see that the cream rises to the crop. There's a few key principles when it comes to the stock market and investing that you'll hear people say over and over and over again, and you hear enough people say it. There's truth to a lot of those things.

15:45So things like compound interest, investing for the long term. Make sure you have diversification, but if you have high conviction on something, maybe consider concentration. The things you'll hear people say a lot, if you get enough diverse opinions and people you trust and the words that they say, you can pick up a lot. And I've found I've picked up things, so I'm a pretty, can be sometimes dogmatic, value investor. I am not wanting to lose money and have felt that responsibility I don't want people to lose money over a 10 year period because realistically it's hard to project much farther than 10 years and so that left me in a constricting box for a while where I didn't grow as a stock picker and you start to deceive yourself into thinking that you are smarter than you are.

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19:21It's available for our value spotlight members. If you want to see the thesis, we're doing a 60 % discount for now, but I'm pulling the deal once the stock hits$45. Check it out at einvestingforbeginners.com slash 60. ideas I've learned from growth investing, which if you're not familiar, growth stock investing and value stock investing are complete opposites of the coin. And it's like, okay, if you're not buying the latest company that IPO'd, then you have no idea what you're doing. Or if you're not buying every stock with a priced earnings below 15 and it's anything anything far away from that low price, then you must be losing.

20:06And that's a dangerous way to think that you can fall into issues with that. So I would say even if you don't end up taking that advice and running with it, I think it's still valuable to know. And I'll quote Charlie Munger again. And I know I'll quote him one more time at least. He said, know your opponent's argument so well that you can refute it first before you assume they're wrong. Something like that, butchering it. But yeah, at least know the argument and then you can decide for yourself what to retain and what to discard. But a lot of times just don't be too dismissive is what I'll say.

20:52Principle number three. Keep going. So I remember vividly and maybe I have the benefit of having been a blogger for a long time. We've had this podcast. So I've been able to creatively reflect a lot on the stock picking journey. And I can't run away from it. It's right in my face. I can remember it in my brain and I can go back and look it up and be like, wow, okay, I really said that. But in 2020, I remember... I guess, no, I wrote this in 2021. So if you weren't a stock picker in 2020, the market crashed pretty bad. And we remember it as kind of like a temporary dip and then it bounced up higher.

21:46The reality underneath the surface, because that was the case. If you look at the S &P 500, it was a steep drop and then it recovered really quickly. And that was because of the strength of what they called the FANG stocks. So that was back before Facebook rebranded to Meta. It was Facebook, Amazon, Netflix, and Google. And so the reason why those stocks really recovered quickly is because people had a flight to safety. In this time of uncertainty, when everything was shut down, investors were scared. and they didn't want to be in stocks and companies that they perceived to have that level of uncertainty and riskiness.

22:28Everybody craved certainty and safety. And so I remember them calling it a flight to safety. And a lot of people went into the fangs. And because the fangs, and you see it now with the big mega caps everybody's talking about, the NVIDIAs of the world, the Apples of the world, all of these companies, right? Because of that, it raised the S &P 500 quite a bit. But for the stock pickers out there who maybe aren't as heavily concentrated, I would say that's usually... If you're a stock picker, you're usually going against the grain and not just buying all the big companies everybody else is buying.

23:08That's just kind of the nature of the beast. But if you were all holding these individual stocks, your portfolio probably got wrecked and it probably stayed wrecked for quite a while. And so because I did a monthly newsletter for so long, I have to post my performance of every stock every month. And so I had a screenshot and I included this in the blog post, but I had a screenshot. It showed all the companies in my portfolio. And I'm telling you, there was so much red. There were so many stocks that had lost money or were just barely breaking even. And that is so demoralizing. It's hard to explain unless you go through it.

23:58But this idea of like, I held this stock and I saw it go up and up and up and up. And I felt like, all right, every day we're making progress. Every day this company is growing. Every day things are slowly compounding and it does and it does and it does until it doesn't. And then you have a huge crash like we saw. And now you're like, wow, four years, five years, just a waste of time. What was I doing buying that stock? What was the point? I'm losing money on it or it's broken even after I had such a big gain. And that's a tough place to be in. And it's a little bit hard to, I would imagine it'd be hard to reenact that feeling.

24:41But that's why you have to keep investing for the long term. You have to have persistence and you can't give up in the stock market. In the blog post I did, which if you want to search up, I can't remember what it's called now, but if you look like reflections of a bear market or something like that on our Investing for Beginners blog. Lessons from a Bear Market, my journal, something like that.

25:07in just a year's time, I took another screenshot and so many of those stocks had rebounded and had huge gains. So it's amazing to see how quickly things change. And not every bear market is going to be like that. Some bear markets are drawn out. I haven't personally lived through one yet, but I'm sure it's coming. And so you look at market history, There are periods of time where things can stay down for five years. You look at the Great Depression, things were down for like 10 years.

25:45There's tough times in the stock market, and that's just part of it. But if you stay persistent, don't lose so much faith in the market that you end up selling and then not getting back in, because that's the absolute worst thing you can do. and I don't want to be negative Nancy at the moment, but if you do that, if you spend all this time stock picking and then you sell at the very bottom, then you kind of have wasted all that time and there's no way to sugarcoat that. So if you take one thing away, stay persistent during bear markets as long as you've had the time horizon and hopefully you've listened to our show, so you've already established your time horizon, you understand the history of the stock market and how it will probably work.

26:32As long as you've done all of that background, you've prepared for it like that, then I would say do not give up. The next principle, principle number four, you can do more than you think and you got to find what works for you. the stock market can be kind of intimidating and i think it's kind of like a lot of things in in life everything everything's a little bit different uh i remember dave and i were just talking about this because um we both used to play guitar and he played guitar at an insane level compared to anything i ever played but as a self-taught person who played guitar i remember there was just this wall with guitar where it's like how you see the people who are doing these these scale solos and and they're they're able to use their picks so so skillfully and i'm over here and my fingers hurt from trying to push down on the on the strings and like i have no idea how to sync up my right hand to my left hand i remember all of that and then it was amazing once I hit, I guess, a tipping point or something.

27:51And then my skill level got to a point where all of a sudden, it's like my eyes were opened and the idea of playing guitar seems so much more achievable, but I had to grind through the suck. I think for some of us, the stock market can feel similarly because there is a ton of jargon. There are so many, it's so conflicting. Everybody has an opinion. and everybody's kind of doing it in their own different way. And that's so frustrating because we want the right way. I think we crave the right way to do it. And sometimes that's not always out there. So I don't have anything unique to add. If you've listened to us for a while, I will just say that keep going, immerse yourself.

28:42It's like learning a new language. You just immerse yourself and over time you understand the jargon. And then one day you look and you're like, hey, I'm doing this. Hey, I'm understanding a balance sheet. Hey, you know what? I heard that expert talking and I understood most of what they're saying. That will happen and that can happen. And you don't have to be super gifted for that to happen. I didn't go to school for finance Dave didn't we didn't take CFA level courses eventually we got to the point where we could teach ourselves the advanced stuff too but in the beginning and for many years it was just learning by osmosis and podcasting is great for that and so keep on keeping on we're going to move on to the next principle principle number five seize the day so this one's going to get a little um i'm gonna jump on the soapbox for a minute so here we go seize the day your your number is not going to give you what you think and i know that's so cliche and i know we've heard it a million times but it really is about the journey and enjoying it and trying to seize the day.

30:08There's so many different milestones and goals you can give yourself for the stock market, for financial independence, whatever that is. And there is a little bit of celebration if you hit certain goals. Brad Pitt said, isn't baseball such a romantic sport? Stock picking and investing is such a romantic activity. And we romanticize and think about all the great things that hitting our goals will give us. And they do. They give us a lot of great things and a lot of comfort and fun and all of those things. But it really is never ending. And I will say, I certainly haven't reached the goals I aspire to.