Hello Value Focus Readers!
I wanted to share a quick word this morning about managing emotions, and also about our motives for investing.
First, let me say that even though this is a Christian investing website, I welcome non-Christians to this site. I understand that you may only have interest in the investment side of my writing, and not so much on the spiritual side. That's totally fine. Then again, you may actually find some of it useful, especially as it relates to managing one's emotions while investing in individual stocks.
But first, I did want to talk a little bit about motives, just to clarify some things about why I'm doing this and maybe help my brothers and sisters think about their own motives. When I first created this website, I mainly saw it as a neat and interesting way to once again have a professional life. I'm not going to re-write my testimony here, but I have not had a steady income since February of 2009. I have massive student loan and other debts that are not being paid at all right now. We survive on what my wife makes by working. We also have another child on the way. Obviously, I am very concerned with providing for my family, and that is still a top priority. But over the last year, God has refined me and my motives to a large degree.
Last year at this time, I was probably pretty excited about the possibility of having some kind of professional life being restored to me. I took a lot of pride in my career, as it was a very high paying and prestigious profession. When I lost my career, I ended up in some really bad places. It all culminated with a stint in a rescue mission and recovery center. When you're living in a converted chicken house, sleeping on bunk beds in one room with 50 other guys, and standing in line for your meals, you won't have any of that type of pride left.
Further, when you get out and you're looking for a job, or any kind of help from others to get back on your feet, things get even worse. People treat you like a disease. Don't get me wrong, lots of people "wish" to see you succeed, they "wish" that they could help, but ultimately decide that they can't help you. When a person needs help, everyone seems to think that someone else is meant to help that person. They never think it's them, even though God has put the person right in front of them. While I have had some very good-hearted people try to help me in some way or other, I can tell you that the normal response for most people is to tell themselves that they can't help... that they have no way to help, or that you're not the "right fit" for them, or one of 1,000 other excuses people give themselves. Once they make up their mind that they're not the one who is supposed to help, they really don't want to deal with the pain of watching you go through your pain anymore. I think Job said it best, "Men at ease have contempt for misfortune." (Job 12:5)
I think you'll find that your phone calls aren't returned nearly as quick, if at all, when you're poor or in need (ironically, the person in need that God has put in our path should probably be our top priority). Last, people just don't treat you with any kind of respect. They look at you like you must not have a clue about anything. They also assume that you must be on the outs with God, because he doesn't seem to be taking care of you the way he does everyone else. When you're in my situation, it's really hard to come up with an answer when someone says, "What do you do?"
"Well, I have a website." awkward look... awkward pause... awkward transition to any other topic but this one.
So, there's a lot of shame and scorn in not being able to provide for yourself and your family. I can't fully describe it, but it's a very hard thing to go through. I'm not trying to whine about it. It's my fault that I ended up in this place. I'm just saying that it's very hard to stay in this place, especially when you're doing everything you know to do to get out of it. So, that was also a large part of my motivation. I was tired of being ashamed.
Well, I can tell you that over the last year, I have come to care less and less what other men think of me. I'm not saying I don't care at all. In some sense we're supposed to care. But when it comes to trying to please other people, or influence their opinion of you, you ultimately can only do so much. Generally, men tend to think whatever they want to think, and whatever makes them feel best about themselves or their own situation. That's why people tend to look at former alcoholics and drug addicts and tell themselves that "those people don't deserve to have a good job." I totally understand a non-Christian thinking that way. My human brain definitely tells me that those who work hard deserve good things and those who don't work as hard, or who make mistakes don't deserve good things. But if or when a Christian starts talking about what they or anyone else deserves, I have parted ways with their logic. That's because the Bible teaches that what we all deserve is eternal death for rebelling against our Creator. That's why he sent his son to die for us, to pay a penalty that we could not pay for ourselves. All we have to do is put our faith in the Son!
But let me get back on track. God has refined my motives to a large degree. Even though many of the end goals are still the same, they are much less self-centered. In other words, they don't revolve around me and my feelings and my desires, at least not quite as much as they did. So, what are my goals?
1) Provide for my immediate family
2) Repay my debts
3) Help the family member whose account I manage
4) Help my extended family to pursue their own dreams and goals
5) Start a ministry that seeks to disciple and aid men coming out of recovery programs and prison. There are already places like the Foundry. But there is nothing to help these men rebuild their life once they leave those places. I want to start a ministry that seeks to provide to these men jobs, zero-interest loans to start businesses, and scholarships to learn trades or other skills. I envision it being a way to make disciples. I envision it as a way to spread the message that there are purposes greater than ourselves, so many in the world who need our help, our time, and our resources. I envision the men in that program as going on mission trips together each year. I would envision that it would eventually be self-supporting through the contributions and volunteering of the men who had already been through it themselves, and had their lives re-established and restored.
6) Get involved in international missions and combine that with #5. Basically, I would want men being helped by the program described in #5 to be fully aware and involved in the needs outside of their own little world. If men don't pour their lives into helping others, what is their life really about? What are their chances of success?
Okay, so now I've got my goals on record for the world to see. I also thought it was important for a Christian audience to understand that managing your emotions is going to be tied directly to having the right motives. You really can't talk about the former without having an established framework for the latter. For example, if I were doing all of this out of greed, what kind of emotions should I expect to experience? Well, let's talk about that.
Managing Your Emotions As An Investor
If you're a Christian, waiting on the Lord is definitely something you will have to learn at some point. Patience is a fruit of the spirit. That means that as we walk with the Lord, he will build patience in us. That's an unavoidable fact. The way he builds patience in us is by requiring us to be patient. Left to my own devices, I'm incredibly impatient. I think most humans are. But for alcoholics and addicts, or former alcoholics/addicts, impatience is a defining characteristic. These are people that have always chosen instant relief over waiting or suffering, in spite of the fact that it means they and everyone else would suffer way more in the long run. We don't spend our teenage and adult years building a normal amount of patience. So, when we come out of that life, we're even less patient than a normal person our age. Further, we're normally in a desperate situation that exacerbates everything we're experiencing. I've had to learn what it means to be patient over the last 2 years.
That's a very good thing because if you intend to be a successful investor, patience is absolutely required. We all would love to buy stocks and then watch them go up into infinity the moment after we buy them. That will undoubtedly happen to you at some point, and it will be very fun. But, we have to be careful not to expect that very often. That brings me to a key point. One of the best ways to build patience is to manage your expectations going into each investment. In fact, value, deep value, and contrarian investments most often get worse before they get better.
If I'm looking for a quick profit and it doesn't come, how will I respond? Most likely, I will respond by selling out of that position and moving onto another one. This is a good way to lose money. If I'm not patient enough to wait for an investment thesis to materialize, I'm not going to do well. That brings me to the next point.
Self-control is also required. When participating in financial markets, there is a huge difference between knowing what you should do, and then actually doing it. The good news is that self-control is also a fruit of the spirit. If you are a Christian, God is going to create self-control in you as you walk with the Lord. I actually often pray and ask the Holy Spirit to "be my self-control" and to "be my patience" because I simply don't have the power to create those things inside myself. I'll give you a good example. On July 28th, the price of BBSI was dropping back really close to my purchase price target of $50. I knew that earnings were going to be released on July 30th, so I knew that the next day, July 29th would be my last chance to build to a full position (12.5-14%) in this stock before the earnings release.
Just to give you the full background, I had actually been praying about this for weeks. I started researching that stock sometime in mid-June. It appeared to me that the market had misinterpreted (or at the very least greatly overreacted) to the past two earnings releases. The more research I did, the more this was confirmed to me. I wrote up a full report and sent it to a hedge fund manager I had been talking to. I wanted to see what he thought about my report before taking any further actions on the stock. Well, the next two days after I sent the report to him, the stock had a pretty wild run on no news at all. It appeared as though the compelling buying opportunity was largely diminished. So, I decided to be patient. I prayed for weeks and basically said, "God, if I'm supposed to buy more of that stock, then let the price get back below $50."
Well, when I got up on July 29th, sure enough the price opened below $50. But there was a problem. The bid was around $49.75 and the ask was almost $51. I've never actually seen anything like that for what is normally a fairly liquid stock. It was pretty strange. You don't want to send a market order into that kind of "market", so I put in a limit order at $49.85. I prayed and said, "God, I know you can let the limit order get hit if you want to, so I'm leaving this in your hands." Well, sure enough the price never came back down. It stayed around $51 most of the day. I said to myself, "Well, it was in God's hands. Maybe I wasn't supposed to buy the stock today. It didn't hit my price target, and I have to have discipline in what I'm doing. Maybe there will be one more earnings report that the market doesn't like before things turn positive again. I don't know. All I know is that I did everything I could do, and this is the way it worked out."
Soon after the market close the earnings number was released and it was incredibly positive (EPS was up 24% year over year). I was immediately upset. I started to question God, especially since this is not the first time this has happened (when I had done a bunch of work, been right, but was basically blocked from being able to take advantage of it). In fact, as I was waiting for this website to be built, I had developed a process for screening, scoring, and ranking stocks. For 4 months in a row, that ranking had put Helmerich & Payne (HP) at the top of the list. By the time the website was up and running, the stock had run up 25%. At that point, I decided maybe dividend investors had gotten too excited too quickly about this stock, and were ignoring some of the potential risks. So, instead of writing my first Dividend Focus report about HP, I ended up writing an article that questioned whether the stock had run up too quickly due to the fact that dividend investors were now interested in it. The last time I looked at it, the stock had more than doubled from where I originally identified it as a good investment ($62), so I finally just stopped looking at it. I felt embittered every time I did look at it.
It didn't stop there. I found some great opportunities in the real estate market. It seemed that I was blocked at every turn when trying to invest in real estate. Intel has been one of my best stock investment ideas to date, and it came a couple of months before I was actually managing the account. So, even though I did get to write a report on it, I didn't get to actually invest in it for my family member's account. I was sick and tired of missing out on opportunities, and having my work amount to nothing, or at least to very little. I started to get really upset. I have prayed day and night for years now that God would restore a career, a business, or some kind of professional life to me. But he hasn't done it. In fact, it almost seems at times like he's working against me. Talk about needing self-control. I was not doing well, and was rapidly losing my self-control.
Beyond that, I had also taken the plunge into retail and coal stocks on July 28th. I prayed about that plenty beforehand. I have felt God leading me to take larger steps of faith lately, and to get way out of my comfort zone. On the day I made those trades, I had felt good about what I was doing even though it went against a lot of my own logic and understanding. Being a contrarian often means going against everything that seems obvious and correct, not only to everyone else, but to yourself as well. So, it took a leap of faith to make that final decision, and I felt good about it as I did it. But almost immediately afterward, I began to question it. "What if I'm wrong?" "Am I acting out of greed?" "What was I thinking?!!"
That's the whole reason most people, including professionals stay away from these kinds of trades. Even though the potential payoff is large, the fear of pain and embarrassment you will feel at having been wrong, when everyone else in the world could clearly see that you were going to be wrong, hardly makes the money worth it. Of course, that's intensified for me, as I put my decisions on a website for everyone to see. Further, I'm not managing my own money. The idea of doing something stupid with someone else's money is even worse. So, I was dealing with a lot of stress and a lot of doubt. I was feeling like a wave of the sea, blown and tossed by the wind.
That brings me to the last thing we need in order to deal with our emotions as investors. We need to have peace. Once again, we're in luck because peace is a fruit of the Spirit. If I were doing all of this out of greed, I'm pretty sure I would not have peace right now. If I were not making what I felt was a good, informed decision that was based on logic, rational thought, and a calculation of risk/reward, I would probably not have peace. The thing about the retail and the coal trade is that it is scary, and it's pretty easy to convince yourself that it's a stupid thing to do. It's not at all what I would normally do. I want to invest in solid companies whose securities are temporarily mispriced for one reason or another. But that is incredibly hard to find in this market.
I want to be patient and make good decisions. At the same time, I don't want to act out of fear. If I am too fearful of loss or humiliation, I'm in the wrong business. God doesn't want his children to live in fear. So, logic dictates that if we're making the right decisions for the right reasons, God will give us peace. Over the last few days, I did not have peace. I ran through every scenario and question I could think of regarding the coal and retail sector bets, and I just kept thinking, "there has to be easier ways to make money." I simply couldn't stand the thought of financial loss, and with normal value investments, I never feel that there is a significant chance of loss as long as I've done the work and run through the calculations. For example, with Coach and Whole Foods, I have no concerns or fears about those investments. I've thoroughly convinced myself that they are good long term investments. But with sector bets driven by a contrarian view and a risk/reward calculation that involves a significant probability of loss, it doesn't feel quite the same.
At some point in the middle of the night last night, I woke up and I immediately started thinking about coal. I realized that was a problem. If I can't sleep, or be present with my family, or live a normal life because of a financial decision I made, then even if it might pay off really well, it is the wrong decision. In other words, no amount of money or success is worth giving up your peace.
I told God that I thought that I must be in the wrong business. I told him I was going to reverse the trades, shut down the website, and try to find a job digging ditches. I was feeling pretty serious about that because I know that I have to keep my priorities straight. I knew that what I was experiencing was not worth it to me. At that point, He gave me total peace. It just came out of nowhere. He did not give me a guarantee. He didn't say, "Don't worry Chris. This coal trade's going to work out." There were no specific words from the still, small voice. Just a complete and total peace that permeated me.
It was so sweet, and I had not felt it in quite a while. I asked him to please never let that peace leave me again.
If you don't have peace about what you're doing with your money, or with anything else, I want you to try something (even if you're not a Christian). I want you to stop what you're doing, get alone if you can, and ask God to give you peace. If you are on the right path, you will most likely find that you soon have peace! If you can't find peace, then I would suggest more prayer until God reveals to you exactly what it is in your life that he would like to change. He will do it! Just try it! I promise you that it will be worth it! I have peace and joy that I cannot even describe today!
I know this was long, but I have no doubt that it is meant for someone out there. As always, I'd like to thank you for reading. I'd also like to offer you my best wishes for you to have peace, joy, and blessings of every kind!
P.S. I am working on a report about the coal trade to give readers more information and insight into my logic and calculations. It may be a while. It may still be a while on the Coach report too. I'm still sitting on some cash, and my main focus has been on putting cash to work. I'm also taking off a couple of days next week to spend time with my son before he goes back to school. But I hope to have some interesting material posted before long!