Lesson Learned: Wait Before Lighting That Victory Cigar

by Charles Sizemore | January 14, 2013 7:15 am

The market, like the Greek gods on Olympus, has a cruel streak. It seems to enjoy toying with us mere mortals, and it seems to enjoy teaching us a little humility as well.

Just a little more than a year ago, I threw into the ring of InvestorPlace’s 10 Stocks for 2012[1] contest with my recommendation of Turkish telecom giant Turkcell (NYSE:TKC[2]). A monster run in the third quarter pushed me into first place, where I kept a tenuous lead right up until New Year’s Eve.

As the final day of 2012 progressed, I maintained a comfortable 2% lead over the TheStreet’s Philip Van Doorn[3] and his recommendation, Capital One (NYSE:COF[4]). Up by more than a percent with less than an hour until close, I felt victory at hand. I pulled a cigar out of the humidor — one I had been saving for a special occasion — and cut it.

So there I sat, cigar in mouth and torch in hand … waiting … when a funny thing happened: In the closing minutes of the trading year, COF had a massive surge while my precious Turkcell flatlined.

I lost the contest by a fraction of a percent in the final three minutes of the trading day.

Needless to say, the cigar didn’t get smoked — it got hurled at my computer screen in a volley of expletives I’m not particularly proud of.

(Congratulations to Philip, by the way, on an excellent choice that would have earned his readers a handsome 38% return.)

So, what lessons can we learn from my humbling tale? Well …

1. Never get cocky when investing: This is an endeavor that rewards a cool, composed disposition. Your ego can be your worst enemy. Yes, it’s fine to engage in fratboy-like banter with fellow traders on StockTwits[5] or Twitter[6] (or better yet, over a beer after you leave the office). I do it all the time, and it’s all in good fun. Just make sure you keep a sense of humor about it, and accept that you will look like a fool now and then when you make your investment moves public. It happens to us all.
2. Investing is a lot like horseshoes and hand grenades — being close is generally good enough: Few investors who bought Turkcell at my recommended price would complain that it “only” returned 37% or that the Banco Santander (NYSE:SAN[7]), which came in third, “only” returned 26%. Along those lines …
3. Don’t get fixated on arbitrary timelines: In the real world of investing, you don’t buy a stock and hold it for exactly one year, buying on Jan. 2 and selling on Dec. 31. If an investment is working, you let it run. And if it’s not, you re-evaluate. You either give the investment theme more time to work out, or you cut your losses and move on. For example, Arcos Dorados (NYSE:ARCO[8]) had a terrible year, losing 42%. But Josh Brown, who recommended it, did not stand by idly while it sank. After the stock gapped lower on a bad earnings release, he sold the stock[9] in the accounts he manages and lived to trade another day. That’s what a good investor does.

And now, it starts again. InvestorPlace just launched the 10 Best Stocks for 2013[10], and it should be a fantastic contest this year. I cast my lot[11] with German luxury automaker Daimler AG (PINK:DDAIF[12]), maker of the iconic Mercedes-Benz. But I also hold Jeff Reeves’ Intel (NASDAQ:INTC[13]) and Steve Freehill’s Two Harbors (NYSE:TWO[14]) both personally and in my Dividend Growth Portfolio[15] at Covestor. (Listen to Jeff and me discuss our picks in this podcast[16]).

I encourage you to follow the contest. If you buy Daimler — and it wins this year– we can light up victory cigars together on New Year’s Eve 2013.

The slightly damaged stick that I cut on New Year’s Eve 2012 has been placed back in the humidor … for now.

Charles Lewis Sizemore, CFA, is the editor of the Sizemore Investment Letter[17], and the chief investment officer of investments firm Sizemore Capital Management. As of this writing, Sizemore Capital was long DDAIF, INTC, SAN, TKC and TWO. Sign up for a FREE copy of his new special report: “Top 3 ETFs for Dividend-Hungry Investors.”[18]

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