My friends sometimes are confused to discover that I’ve turned down fairly large investors. Their argument usually is, “Good god man! What are you thinking?”
There is a particular investor that I try to avoid. So far, the experiment is working beautifully. This type of investor usually introduces himself/herself to me with the phrase, “What are your returns over the last [Insert Time Period Here].” Another common phrase is, “If I give you [Insert Dollar Amount Here], how much can you make me in the next [Insert Time Period Here].”
To be honest, most of my strength comes from knowing a few of my weaknesses. Part of this is anticipating the weaknesses of others. The problem with the statements above is that I find that this is the type of investor that is prone to panic at the bottom and trying to put more money in at the top. To illustrate this more effectively, I want to kind of talk about how this has worked in my experience.
I am 100% confident that when it is time to buy, all in, that the dollar value of whatever accounts I will be managing (if liquidated at that moment) will be significantly lower than they were the month before. When people see their account numbers go down, they get afraid. If you study mutual fund flows, most of the people out there take a lot of money out at bottoms and put it back in at market tops. It’s my belief that the average mutual fund investor loses money. Knowing this, my goal is to avoid the investor that seeks a track record and disregards the philosophy behind it. It’s my belief that it is this investor that will force you to sell when it is time to buy. Since the goal is to be able to buy low and sell high, working with people who may force you to sell low is not advantageous, and thus, I avoid this type of investor.
When stocks are low, and cheap: they naturally don’t want to buy them. After the gains have been realized and you have a “track record” suddenly everyone wants to buy! What you usually run into is people who want to buy after the money is made — as if there is still more money to be made.
So, how do I do it? Well, I don’t know really. I just keep talking about the stuff that interests me. Over time, people with similar interests have by chance run into me and we’ve exchanged ideas. I’m a believer in the whole “not screwing up” philosophy — that is to say that as long as I don’t screw up, people won’t abandon me. In this case, knowing that markets gyrate wildly, picking your investors is as important as picking your stocks. I think I’ve done an incredibly good job of that. I work with some great people.
I like this guy:
http://wefe5433.blogspot.com/p/about-me.html