Be Completely Honest About Your Investing Weakness


Warren Buffett once said, “I’ve never swung at a ball while it’s still in the pitcher’s glove.” Incidentally, that perfectly describes the category of investing mistakes that I am prone to make—I am likely to be predict something way before it actually happens. I am much better at predicting what will happen than I am at predicting when it will happen.

For instance, at the end of 2011, I began writing Seeking Alpha articles mentioning that interest rates are likely to increase soon because the economy is improving. Well, one year and a half later, and we’re only now just starting to realistically consider the possibility that rates will be going up. The good news is that I have not been harmed in any way by this call—I spend my time focusing on finding excellent companies to buy at decent prices, and then letting the dividends roll in from there. When you spend your life stuffing your personal balance sheet with ownership stakes in Coca-Cola, Johnson & Johnson, Colgate-Palmolive, Exxon Mobil, and others, it is hard to screw life up from an investing perspective if you let the dividends pile up and hold those companies for the long haul as part of a diversified portfolio of stocks.

I’ll give you another example of me being too early. I’ve spent the past year and a half buying shares of BP stock because I believe that the risks for the company are overstated given that it has literally billions and billions of dollars worth of proven oil reserves and about 30 trillion cubic feet of natural gas reserves. BP is pretty much Britain’s version of Exxon. But I have been early in my call—the price of the stock has remained in the low $40s while almost everything else has been going up.

But I have been able to use “being wrong” to my advantage because each time I reinvest shares in the low $40s, they act like a coiled spring that will give me greater wealth when the price of the stock eventually normalizes and works its way up to the $60 range again in line with its fair value. The good news about being a long-term investor is that you can have the patience to wait an investment thesis out if you are right, and you don’t incur much harm if you are wrong.

What about you? When you look at your investing style—what are the potential holes in your strategy, and what actions do you take to mitigate them?



Originally posted 2013-06-30 14:32:18.

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4 thoughts on “Be Completely Honest About Your Investing Weakness

  1. Tim, show BP's payout ratio at 179%. What gives? Is that an anomaly or is it something over which to be concerned in your opinion?

    I like the PE and dividend yield as well as the dividend growth rate, but the aformentioned payout gives me pause.

    1. Tim McAleenan says:

      Curtis! Thanks for the kind words at MMM.

      As for BP, you were likely looking at figures that didn't take into account one-time events, as BP has been reshuffling its assets (and taking tax hits on them) in the past year. BP is expected to earn $5.50 this year. $2.16 worth of that will be paid out as a dividend. That means BP is sending about 40% of its profits to shareholders as a cash dividend on a normalized basis.

      Hope that helps!

  2. You're welcome! And thank you. That does help. I'm having a hard time choosing where to put my money for the next ROTH IRA purchase. BP, GE, KO? I feel like a kid in a candy store. Too many choices, but I must admit that BP seems like a good value at this time.

    Keep up the great work. Tim.

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