A couple of weeks ago an email went out to select Virgin America customers, the important part of which went like this;
The LOYAL3 Social IPO™ Platform allows individuals to purchase shares in our IPO at the same price, and at the same time, as institutions and other large investors. Participation is on a first-come, first-served basis.
Individuals can elect to purchase shares in our IPO through LOYAL3 in amounts ranging from $100-$10,000, with no transaction fees. Please don’t forward. This invitation is intended only for you and is not transferable. Your Elevate Gold or Elevate Silver Status will need to be effective as of October 29, 2014 to be able to participate.
It was an interesting, but not completely original way to offer IPO access to loyal customers. Usually I am suspect of approaches like this as the big boys on Wall Street don’t like to share with the proletariat. Opening it up to the average Joe made me suspect that the offering was under subscribed.
Nevertheless, when a friend asked me about it I put aside my reservations and asked him a few questions, including why he wanted to buy, and how long he intended to hold.
His reasoning was straightforward and reasonable — he liked the service. This was to be a long-term hold he said, in the neighborhood of 5-10 years. He is a young guy, with no family, who has yet to enter his best earning years, which from my perspective made for some simple advice.
“If you believe in this company and it is a long term-hold for you” I said, “just put in as much as you can afford right now.”
“Right” he replied.
Yesterday I got a message from him;
“I am the biggest idiot in the world. I talked myself out of buying that Virgin stock. I reasoned airlines are a bad business and I didn’t buy. I could have gotten in at $23 and now the stock is at $33. I am such an idiot.”
“So would you have sold it already?” I asked.
“I would have put in a stop-loss to protect profits.”
“Really? But I thought it was a 5-10 year hold?”
“Lol. Who knows. Good point!”
What my confused friend was illustrating is that there is no such thing as intermediate-term investing. In the quest to save investors from their greatest foe, themselves, their only chance is to focus on the “now” and the “forever” — everything in between is death. Black death. A vortex of bad decisions and negative returns that very few investors ever come back from. You don’t want to go there. It’s the Jan Brady of investing.
The closer you are to a day trader or Warren Buffett, the better off you are.
The short-term investor has time on their side. It is transcendent and objective. The minute, hour, day, or week — if obeyed — tells them when to stop. When the game is over. And when to start it back up again.
The long-term investor relieves themselves of the burden of themselves. All they need is a drawer to put their investments in and they are good to go.
The rub is that humans don’t naturally work well in either of these times frames. We are drawn impulsively and inextricably to the intermediate-term. The time frame between “It needs some time to work out, I’m holding” and “It will never come back, I’m selling.”
I saw how this time frame works, up close and personal, early in my investing career.
My great-aunt Geneva was the oldest of the Kelly girls from Fillmore, Utah. Yes, those Kelly girls. A fiery redhead, she had a passion for life as intense as her as the color of her hair. Though not a woman of means, a series of familial bequests had snowballed in her favor, leaving her in possession of a decent sized portfolio of common stock.
With no children of her own, she decided to leave the stock to my sister and I once she had passed. But before that could happen my father got very ill, and knowing our family as a whole would need it more, changed her will and left it to him. Shortly after her death he took possession of my former stock, walked straight into the crash of 87′, and sold it all not far from the bottom.
I remember the stocks well. There was Bank of America, Ford, CSX, General Motors, and a host of other blue chip names. I can only imagine what that stock would be worth today if it had been given to me instead of my father. Imagine, of course, because as a naive 20-year-old, I would have sold it just as quickly as he did after the crash. Maybe even quicker.
That’s how the intermediate-term gets you; it feels so right, and the alternatives feel so wrong.
Day trading is one of the toughest things you can do and swing trading is only easier by comparison. And the long-term approach requires investors to maintain a state of active ignorance. Neither time frame feels natural.
In early 2000 I read an article about some of the “dellionaires,” men and women, well, really only men, who had bought Dell stock when it IPO’d and had become millionaires, some many times over. This necessitated holding the stock for over 12 years. Who, other than Warren Buffett does that?
I bought a stock in 1992, after the girl I was in love with introduced me to some friends who were looking for a drummer to join their band. They were all biotech grad students who worked as interns in the lab of a new pharma company. (I’m sure you can imagine what a rocking band that was).
The company was (is) Cortex Pharmaceuticals and according to my new band mates, had a blockbuster drug that was going to cure Alzheimer’s. I am still a long-term investor in the company and on the days when the stock actually opens, it trades around a nickel. That’s how long-term investing has worked out for me.
And those dellionaires, did the intermediate-term claim them when less than a year after that article was published the market crashed, or were they able to hold the stock for another 12 years until Micheal Dell made their choice for them by taking the company private?